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A logistics gateway between three continents

اﻟﺘﻘﺮﻳﺮ اﻟﺴﻨﻮي Annual Report اﻟﺘﻘﺮﻳﺮ اﻟﺴﻨﻮي 2017 2017 2017 IN NAME OF ALLAH, THE MOST GRACIOUS, THE MOST MERCIFUL 4 Annual Report 2017 5

Bahri is continuing its 40-years With the support of the Yes.. we can say.. after journey to develop into one of government and the trust of its 40 years of success: Towards the world’s premier transporta- customers in the quality of the tion and logistics services services it offers, Bahri is now Bahri.. Towards New. Horizons companies occupying a prime an inspiring benchmark for New position in the global maritime other businesses to follow and industry. a source of national pride. We Horizons are also the perfect example of what can be achieved in the Kingdom’s prosperous economy, given our roots as a small shipping firm operating multipurpose vessels. 6 Annual Report 2017 7 Table of contents

Page Section

8 Foreword by the Chairman

10 CEO Statement

12 Bahri’s Board of Directors Foreword

14 Executive summary by the CEO

22 Chapter One Bahri as a Company Chairman Statement

Page Page 38 Chapter Two Strategic partnerships Chapter Three Results and achievements of Bahri’s Strategic 50 Business Units 84 Chapter Four Reports from supporting departments

100 Chapter Five Disclosures and transparency

106 Chapter Six Disclosures from the Finance Department 118 Chapter Seven Assets and liabilities statement 8 14 122 Chapter Eight Members of the Board and its Committees 130 Chapter Nine Executive management Indicators and Results and Financial 134 Chapter Ten Fleet information variables achievements results Consolidated financial statements 140 Chapter Eleven Page Page Page 18 24 32

Our journey continues… 8 Annual Report 2017 9

Dear respected shareholders of Through the expertise of our human We can say that Bahri’s success Bahri, resources and proactive nature is a product of the collective of our information technology efforts of our entire workforce Bahri has maintained its reputation as infrastructure, we have achieved and the support of our wise one of the world’s leading companies optimal management of Bahri’s fleet Saudi government, which wants in logistics and transportation. compared to our competitors. Bahri to establish us as a national Foreword by is also distinguished by its ability to benchmark. We must also point It has contributed significantly to optimize its carriers and ships’ route to our stringent quality control the development of the international and destination planning; as a result, system, which has become an transportation industry by focusing we managed to achieve our highest international benchmark for the on innovation and sustained ever revenues per ship. maritime transportation industry. commitment to providing pioneering the Chairman maritime, land and air-based Bahri’s success is not only reliant This is because we consider services that utilizes state-of-the-art on leveraging the technology quality a critical component of technology. provided by predictive analytics our corporate structure, which is applications. The company has also supported by a team of experts. Despite the substantial challenges This integrated team has managed we encountered in 2017 resulting to develop Bahri’s services to from a volatile global market, Bahri new heights, culminating in an has nevertheless followed through on outstanding 2017 performance. In its strategy of continuous expansion turn, this has formed the basis for in line with our global competitors. radical among the biggest players Today, Bahri is the largest owner in the maritime transportation and operator of Very Large Crude sector in the medium and long Carriers (VLCCs) in the world, and is term. also the largest owner and operator of chemical tankers in the Middle Bahri is working towards becoming East. The company currently owns an integrated supplier of logistical 88 vessels, including 41 VLCCs, services by utilizing its capabilities 36 chemical/product tankers, six and developing innovative multipurpose vessels and five dry solutions that improve value for bulk carriers. This is in addition both customers and shareholders to five VLCCs under construction depended on an integrated and as well. that will be delivered through our advanced management platform that partnership with Hyundai Heavy supports safety, quality and optimal We take pride in completing more Industries Company (HHI). structuring of cost. This is overseen than 38 consecutive years of by a qualified workforce equipped continuous operations, and we The total capacity of Bahri’s VLCCs with the highest levels of technical are advancing towards further is 1.6 million Dead Weight Tonnage knowledge, skill and management development and success by (DWT), while Bahri’s chemical capabilities, who drive Bahri’s efforts building a robust network of tankers can transport 1.3 million to increase profitability and maximize customers inside the Kingdom and DWT. return on equity. abroad and achieving a positive and global reputation built on Our business aims to fulfill the aims Furthermore, Bahri has implemented quality, reliability and safety. and objectives of the Saudi Vision an integrated customer-centric plan 2030, which emphasizes on the role focused on building long-term and Finally, I would like to thank the of the private sector, investment in flexible partnerships through which it government of the Custodian of the non-oil resources and provision of can provide distinguished logistical Two Holy Mosques and his Crown job opportunities to national talents solutions. Prince for their support. by focusing on their skills and I would also like to thank Bahri’s qualifications and encouraging them Board of Directors for all their to take up high-profile executive roles continued efforts in helping us in different sectors. achieve our objectives. Finally, I extend my gratitude to Bahri’s Bahri has worked throughout the owners, partners and employees year on harnessing the power of for their endeavors in helping the technology and utilizing it to support Company meet the aspirations and our industry leadership and boost expectations of its shareholders competition.The utilization of Big and customers. Data capabilities has contributed to Ongoing improvements to We look forward to another year our Big Data capabilities,have in of success, new future prospects turn contributed to streamlined and further achievements. management of our fleet and more precise scheduling for our vessels.

Abdulrahman Mohammed Al-Mofadhi Chairman 10 Annual Report 2017 11

Bahri has just completed a year Ship Owner/Operator of the Year and launch BahriBunge Dry Bulk Ltd. characterized by prosperous Ship Manager of the Year in addition to with $35 million of startup capital. leadership and success. We are receiving The Lloyd’s List Ship Operator Bahri will owns a 60 percent stake in a major Company that has grown Award for South Asia, Middle East and the venture, while Bunge owning the to become a national symbol of Africa 2017. remaining 40 percent. Moreover, Bahri pride and one of the world’s largest has signed an agreement with the businesses in our sector. Lloyd’s Register’s human factors team It also won the Lloyd’s List Intelligence to improve the Company’s culture The CEO’s We are proud of the fact that we have Innovation Award for South Asia, of safety among our employees. hoisted the Saudi flag on 36 vessels Middle East and Africa 2017 as well as This reflects Bahri’s commitment to that have been relaunched in line with being named MEED’s 2017 Transport implementing the highest standards Bahri’s objective of raising Saudi Arabia’s Company of the Year. Bahri’s list of of safety measures for workers standing in the international maritime 2017 accolades was capped off with both on board our ships and in our sector and increasing the volume and the Indian Maritime 2017 Award for Best departments. message reputation of the Saudi shipping fleet and Shipping Line of the Year in the category raising Saudi Arabia’s standing in the of Breakbulk Heavy Lift Operator, and Bahri has substantially improved international maritime sector. We have the Company qualified for the finals of its performance and operations in added seven new vessels to our fleet the Environment and Safety Compliance several areas as outlined below: including five VLCCs and two chemical Awards. tankers. The number of ships managed - We improved our performance in by Bahri has reached 88. Key partnerships established during the Ship Inspection Report (SIRE) 2017 include a joint venture with Saudi Program by 12 percent. The Company In addition, we have operated 387 Aramco, Lamprell Plc and HHI to concluded the year by recording cargo flights and transported 785.5 establish and operate an international the industry’s best global average million barrels of oil all over the world. maritime yard at the King Salman of 30 percent at the Oil Companies International Complex for Maritime International Marine Forum (OCIMF). To complement our business further, Industries and Services; Bahri will Bahri Logistics has launched six new contribute 19.9 percent of capital - The Company became the main and advanced multipurpose vessels and towards the venture, equivalent to operator for key customers such as five dry bulk carriers. SAR522.38 million. Saudi Aramco, S-Oil Corporation, UNIPEC, Reliance, Essar and Shell. Bahri has increased its international Bahri also signed an agreement with presence and expanded all over the Bolloré Group to set up the Bahri Bolloré - The Company’s performance in world by establishing new commercial Logistics joint venture. Bahri owns a 60 2017 improved by13 percent on the representative offices in Europe and percent stake while Bolloré owning the Port State Control (PSC) indicator for the USA. We plan to expand our remaining 40 percent. ship inspections compared to 2016. international presence further by The project aims to facilitate expansion Bahri also succeeded in committing opening up similar offices in Asia in the logistics management market and no violations. throughout 2018. tap into the fast-growing supply chain in the GCC. - Bahri’s fleet has undergone 28 The importance of the maritime shipping inspections by the US Coast Guard industry is demonstrated by indicators Additionally, Bahri inked an agreement (USCG) throughout the year with and statistics that indicate 90 percent with the Saudi Railway Company (SAR) zero negative observations recorded of commercial activity in the Kingdom under which Bahri Logistics will provide compared to a similar period in 2016, occurs via the sea, especially as the transportation and shipping from around which saw 22 inspections resulting in country enjoys a 1,500-mile coastline. the world to SAR’s hubs of operation three violations. In fact, the Saudi Vision 2030 in the Kingdom, as well as customs emphasizes the role of the Kingdom as clearance services. We present to you Bahri’s 2017 a key player in the region and highlights annual report, which contains further the importance of the private sector’s The company have entered into a details on all our lines of business as role. joint venture with the Dutch firm well as detailed statistical tables and The government is keen to reinforce Koninklijke Bunge B.V. (Bunge) to infographics. This is to ensure we Saudi Arabia’s leading position in the are meeting the highest transparency maritime shipping sector and issued and governance standards which are a royal decree to offer management integral components of our corporate and operations contracts to the private activities. We are forging ahead by sector through a public tender process. entering new areas of operations This significant shift in the way Saudi and examining fresh prospects to seaports operate has helped the improve by identifying the finest government alleviate certain substantial technical solutions and highest safety costs by transferring operational control and security standards upon which to the private sector while still increasing we can base our business. governmental returns to SAR4.5 billion. I would like to conclude by thanking Bahri’s endeavors, which include forging everyone who has contributed to many partnerships necessary to grow Bahri’s achievements, especially its business, have been recognized in our government headed by the the form of several awards this year. Custodian of the Two Holy Mosques In 2017, the Company was honored and his Crown Prince together with with the Maritime Standard’s award for all related organizations and their staff. Abdullah Aldubaikhi Chief Executive Officer 12 Annual Report 2017 13

Bahri is committed to applying corporate governance principles as stipulated in Saudi trade and investment regulations. This includes electing a board consisting of nine members and a chairman. The responsibilities of the board are mainly of a directional and Bahri’s Board supervisory nature and involve developing the general strategies for the Company, managing risks, ensuring Company effectiveness and approving budgets and fiscal policies.

of Directors The board of directors is responsible for representing the Company in the General Assembly of Shareholders in accordance with the appropriate statutes, laws and regulations in addition to monitoring the Company’s performance and the work of the executive management. It also formulates policies that gover stakeholder relations and protecting their interests.

Dr. Ghassan Saleh Abdullah Ibrahim Qassim Ahmed Ali Abdulrahman Al-Shibl Al-Debasi Al-Buainain Al-Subaey

Board Member Board Member Board Member Board Member

Dr. Abdulmalik Abdullah Khalid Mohammed Khalifa Abdullatif Al-Hogail Alaraifi Al-Mulhim

Board Member Board Member Board Member

Abdulrahman Mohammed Al-Mofadhi Mohammed Abdulaziz Al-Sarhan Chairman Vice Chairman 14 Annual Report 2017 15

Executive Summary

2017 16 Annual Report 2017 17

Executive Summary Executive Summary

1 Bahri Oil 2 Bahri Chemicals

Bahri Oil Bahri Chemicals

–– Bahri Oil succeeded in adding five recently –– Bahri Chemicals achieved massive growth built VLCCs to its fleet this year, increasing in 2017. The fleet that operates under its the number of ships we own to 41 that all 5 commercial department increased from feature advanced marine technology and 24 to 35 vessels. The increase in ship the capacity to minimize fuel consumption. 5 VLCCs from numbers, achieved via strong and long- 12 35 Hyundai Samho term partnerships, resulted in a large rise Bahri Chemicals’ – – Bahri Oil’s fleet growth continued Heavy Industries increase in business and revenue volume fleet of ships promisingly in 2018, when five new VLCCs over the year. that are being currently built by Hyundai (HSHI) increased in 2017 Samho Heavy Industries (HSHI) and due for –– Bahri Chemicals succeeded in delivering completion within the first half of the year outstanding performance compared to will be added to the fleet, increasing the its competitors. It focused on improving total number of ships to 46. the volume and optimization of its fleet. Efficiency was improved by securing a –– The fleet expansion contributed to firm foothold in certain operations such the implementation of the Company’s 41 as transporting clean oil and vegetable oil diversification strategy, which in turn has products. This in turn enabled us to add enabled the development of the customer VLCCs owned by new trade routes and ensure tankers were Secured a firm foothold in base in 2017 and the introduction of new Bahri loaded on their return to loading terminals. other areas of operations trade routes. such as transporting –– Bahri Chemicals worked on increasing its clean oil and vegetable oil – – The Arab Petroleum Investments international presence by establishing new products Corporation (APICORP) Bahri Oil Shipping commercial representative offices outside Fund has achieved considerable progress the Middle East, mainly in the US; the with regard to discussions it held with Company plans to establish a presence in local, regional and international banks. Asia during 2018. The first investment fund is expected to be completed in 2018 and will help in the –– Daily fuel savings of around five tons per process of acquiring five VLCCs. ship were achieved through a wide range of initiatives that have been implemented –– The new quality standard ISO 9001:2015 over the last few years that aimed to reduce Established more has been approved and implemented in our APICORP Bahri Oil overall fuel consumption. commercial representative business which constitutes an important transformation and key milestone in quality Shipping Fund –– The Company’s IMO2-type fleet has been offices outside the Middle management. developed while cargo growth has been East; the Company aims to boosted. The Company has also focused establish a presence in Asia –– The world’s maritime transport industry on diversifying the types of assets used – over 2018. has recognized the achievements of Bahri including stainless steel ships that will fulfill through two awards from the Maritime the various logistical needs of customers Standard and the Lloyd’s List for Best by being able to ship a wider range of Ship Owner/Operator of the Year and Best products. Marine Transport Company of the Year. Other awards included MEED’s 2017 award for Transport Company of the Year. The new quality –– In coordination with the Saudi Public standard Transport Authority, Bahri has hoisted the ISO 9001:2015 Focused on Saudi flag on 31 of its VLCCs and five product carriers. has been improving the volume approved and utilization of its fleet 18 Annual Report 2017 19

Executive Summary Executive Summary

3 Bahri Logistics 4 Bahri Dry Bulk

Bahri Logistics Bahri Dry Bulk

–– The Company entered into a joint venture –– Bahri Dry Bulk worked towards improving agreement with Bolloré Group under the its fleet capabilities by adding four new name of BahriBolloré Logistics, with Bahri vessels designed according to the latest owning a 60 percent stake in the joint international technical specifications. These venture and Bolloré owning the remaining will be delivered by 2020 according to 40 percent. The project aims to facilitate an agreement signed with Hyundai Mipo expansion in the logistics management Signed a joint venture Dockyard (HMD) 2020 market and tap into the fast-growing supply agreement with Bolloré chain in Saudi Arabia and the GCC. –– The Company completed an initiative The contract with Group under the launched in 2016 that aimed to acquire HHI will provide new – – The Company also inked an agreement name of “BahriBolloré a greater market share in the region by vessels designed with the Saudi Railway Company (SAR) attracting new customers and increasing according to the under which Bahri Logistics provides Logistics” the volume of bulk needed to be latest international transportation and shipping along with transported to 5 million tons – a 25 percent specifications for customs clearance services from around increase compared to last year. the world to SAR’s hubs of operation in the Bahri Dry Bulk’s fleet Kingdom. –– A joint-venture agreement was concluded with the Dutch firm Koninklijke Bunge B.V. –– Alexandria Port has been added to the (Bunge), with Bahri owning a 60 percent Company’s portfolio of ports in Egypt and Concluded stake and Bunge owning the remaining 40 will act as a new direct port call. This will an agreement percent. As a result, BahriBunge Dry Bulk allow Bahri to offer breakbulk and roll-on/ Ltd. is launched with $35 million in capital roll-off transportation services on its North with the “Saudi investment. American schedule. Railway Company – Million (SAR)” – BahriBunge Dry Bulk Ltd. is launched to –– The company has been restructured with serve all customers in the region. 5 Tons new departments introduced that contribute to delivering high-quality logistical services in addition to the acquisition of the ISO The Company 2015 certificate that will complement the acquired a new target ISO 2009 certificate. market share and increased transported –– The Company acts as the exclusive carrier cargo volume to 5 for the Saudi Ministry of Defense and the Added Alexandria million tons Ministry of Interior. Port to the –– The Company signed cooperative Company’s agreements with partner carriers including portfolio of Höegh Autoliners, Liberty Global Logistics seaports in Egypt and Rickmers-Linie. Bahri – Bunge 60% Bahri’s stake in The Companyv has the “BahriBolloré facilitated commercial management of dry Logistics project” bulk carriers and helped customers in transporting cargo around the world to and from the region. 20 Annual Report 2017 21

Executive Summary Executive Summary

5 Bahri Ship Management 6 Bahri Data

Bahri Ship Management Bahri Data

–– Seven ships have been added to Bahri Ship –– Work was completed on integrating system Management’s fleet including five VLCCs operations for Bahri Data’s BRISO (Bahri and two chemical tankers. The number of 7 Resource Integrated Sea Operations) BRISO ships under Bahri’s technical management 36 platform, which integrates various streams has increased to 85. 7 vessels of information related to business shipping. were added 36 vessels were The Company –– Periodic maintenance of dockyards hosting to “Bahri Ship relaunched and –– In 2017, the Company worked with Bahri developed nine VLCCs and six chemical tankers ship management and other stakeholders Management’s flew the Saudi integrated system was carried out throughout the year; the to conduct audits based on data about operations for its Company carefully planned the docking fleet” flag operations and reducing operational costs. and maintenance of ships to be completed This data analysis led to a decrease in costs “BRISO” platform within the shortest time possible without in four key areas – warehouse management, affecting quality or customer service. cruise control, maintenance, and crew.

–– The Company relaunched 36 ships and –– The Company developed a new marine hoisted the Saudi flag on them. This reflects application named “Safe Seas” in our commitment to boosting the Kingdom’s cooperation with DNV GL, a global quality position in the world’s maritime sector and + assurance and risk management Company. increasing the capacity and international 6 9 30% The application improves marine safety, reputation of the Saudi fleet. Periodic maintenance Performance on security, quality and compliance with the industry’s global regulations. It was the ship inspection –– 11 employees from the Saudi Public of nine VLCCs and exhibited at Bahri’s Big Data Forum held in report (SIRE) program Transport Authority were trained at our six chemical tankers November 2017. Audits based offices in Dubai as well as 15 trainees improved and a rating on data about were carried out of 30 percent was from the Maritime Consulting Center in operations Dammam (affiliated to the Saudi Ports during the year achieved. Authority) as part of the Company’s initiative and reducing for supporting the maritime industry in the operational costs Kingdom. were conducted –– The Company won the Maritime Standard’s award for Ship Manager of the Year in addition to the Lloyd’s List’s Ship Operator 11 Award. It also qualified for the finals of the 11 employees Environmental and Safety Compliance Safe Seas Awards. from the Saudi The Company Application Public Transport – passed the DNV- – Performance in the Ship Inspection Report Authority were (SIRE) program increased by 12 percent. GLISM checks A new marine The Company concluded the year with trained at the and achieved an application named a 30 percent rating that was better than Company’s Dubai ISO merit in the “Safe Seas” the industry’s global average at the Oil offices Companies International Marine Forum new audit system. was developed (OCIMF). in cooperation with DNV GL, a –– The Company recorded a performance increase of 13 percent on the Port State global quality Control (PSC) indicator for ship inspections 13% assurance and Compared to the 2016 average, with no 15 risk management violations recorded. Our fleet has also on the Port State 15 employees undergone 28 inspections by the US Coast Company. from the Maritime Control (PSC) Guard (USCG) throughout the year with no indicator for negative observations. Consulting Center in Dammam were ship inspections –– The company has passed DNV-GLISM trained as part of an compared to the checks and achieved an ISO merit in the initiative to support 2016 average new audit system. the maritime sector. 22 Annual Report 2017 23

Chapter One 1

Bahri

Company Overview 26 Vision, Mission and Values 26 Main Services and Operations 28 Awards and Honors 30 24 Annual Report 2017 25

Bahri

ENDLESS HORIZONS 26 Annual Report 2017 27

Bahri

Company Overview Main Sectors Bahri, the National Shipping Since its inception four decades Through its commitment to Company of Saudi Arabia,was ago, Bahri has grown from a small innovation and applying best established by Royal Decree no. M/5 shipping firm operating multipurpose practices across all areas of its Bahri is one of the world’s foremost as a public shareholding Company vessels to becoming one of the business, Bahri has been able to logistics and transportation listed on the Saudi Stock Exchange largest transportation providers stay at the forefront of the maritime companies. Established as the (Tadawul) on January 22, 1978 in the world and today occupies industry throughout its operational national shipping carrier of Saudi The Saudi Public Investment a leading position in the global history while diversifying its Arabia, Bahri has played a leading role Fund (PIF) holds a 22 percent maritime industry today. business operations and expanding in the transformation and growth of ownership stake and Saudi Aramco This year we take pride in into new markets to support its the global shipping industry through Development Company (SADCO) completing more than 38 position as a global transportation a special focus on innovation and holds 20 percent. consecutive years of continuous and logistics leader. commitment to delivering technology- operations and aim to facilitate driven and value-added onshore, further development and success offshore and aviation-based services. as well as building a robust network of customers inside and outside the As one of the largest providers of Kingdom. Our target is to achieve a maritime services globally,Bahri far-reaching and unrivaled reputation structures its operations around six for quality, reliability and safety key business units – Bahri Oil, Bahri that supports our status as one Chemicals, Bahri Logistics, Bahri Dry of the world’s largest owners and Bulk, Bahri Ship Management, and operators of VLCCs. Bahri Data.

Vision Mission Values

Connecting By consistently focusing - Driven Oil economies, on our values and - Relentless 1 share prosperity responsible business - Transparent and drive excellence fundamentals, we shall be - Considerate 2 Chemicals in global logistics a leading service provider services. applying best practices Logistics to run a world-class fleet, 3 whilst building mutually beneficial relationships 4 Dry Bulk with all stakeholders. 5 Ship Management

6 Data 28 Annual Report 2017 29

Bahri

Economic Services and Activities Destinations and Network of Agents

Bahri provides a number of services In 2015, Bahri established the Bahri By focusing on its core values With its extensive network of of VLCCs with a total capacity of that support local and global Data subsidiary as part of its efforts along with responsible business agents, Bahri provides services 11.6 million DWT, and is the largest industries and investments including to diversify its business, further strategies, Bahri is committed across continents, reaching from owner and operator of chemical the transportation of crude oil, oil strengthening its position as a leading to boosting the reputation of the the Middle East, Africa and Asia tankers in the Middle East with a products, chemicals, dry-bulk, Company that makes informed Kingdom of Saudi Arabia as a to Europe and the US. Bahri is the fleet capacity of 1.3 million DWT. general and breakbulk cargo, and ship decisions in the maritime sector based management. on accurate and reliable data. gateway to three continents in the world’s largest owner and operator field of logistics. Bahri contributes The Company tailors its services effectively to the realization of the according to the needs of its Saudi Vision 2030 by constantly customers, starting from generating the delivering high-value services and highest value for third party companies expanding its presence around the to building specially designed ships world. that provide integrated transportation services locally and globally.

Bahri’s Fleet and Carriers Around the World 11. 6 1.3 Million DWT Million DWT Bahri is the largest owner and operator of VLCCs in the world and the largest owner of chemical tankers in the Middle East. The Company’s fleet currently comprises 88 vessels in different sectors – 41 VLCCs, 36 chemical and oil tankers, six multipurpose vessels and five dry bulk carriers. This is in addition to five VLCCs and four dry bulk Bahri’s VLCC fleet Bahri’s chemical tankers fleet carriers under construction and awaiting delivery. capacity capacity 88 vessels in different sectors 26 0.40 41 36 6 5 5 4 Thousand DWT Million DWT VLCCs Chemical Multipurpose Dry bulk VLCCs under Dry bulk and vessels carriers construction carriers Bahri Logistics’ fleet Bahri Dry Bulk’s fleet product and awaiting under tankers delivery construction capacity capacity 30 Annual Report 2017 31

Bahri

Bahri’s Awards and Honors

–– Bahri, the global leader in transportation and logistics services, has received four prestigious awards in recognition of its exemplary business activities and perseverance in developing the maritime transportation sector over 2017.

• The Lloyd’s List Ship Operator Award for South Asia, Middle East and Africa 2017.

• The Lloyd’s List Intelligence Innovation Award for South Asia, Middle East and Africa 2017.

• MEED’s 2017 Transport Company of the Year award.

• The Maritime Standard award for Ship Owner / Operator of the Year.

These awards reflect the Company’s success in fostering a positive workplace culture, its success in implementing innovative practices and achieving the highest standards of customer service. This is in accordance with the ambitious national visions and strategies developed by Bahri. These awards emphasizes the Company’s determination to be a leader in determining the future of the maritime sector with an informed vision and effective innovation. Moreover, Moreover, they justify Bahri’s dedication to attracting and continue developing and delivering exemplary services.

The Lloyd’s List Intelligence Innovation Award For 2017 AWARDS 32 Bahri Annual Report 2017 Annual Report

AWARDS For 2017 Year Operator of the Ship Owner / award for Standard TMS The Maritime Honors Bahri’s Awards and 33 34 Bahri Annual Report 2017 Annual Report

AWARDS For 2017 Year Manager of the Award forShip Standard TMS The Maritime Honors Bahri’s Awards and 35 36 Bahri Annual Report 2017 Annual Report

AWARDS For 2017 Year Company of the Transport MEED’s Honors Bahri’s Awards and 37 38 Annual Report 2017 39

Chapter Two 2

Strategic Partnerships

Bahri’s Strategy and Saudi Vision 2030 42 Bahri’s Ras Al-Khair Partnership 46 40 Annual Report 2017 41

2 Strategic Partnerships

Sustained Growth Continuous Development 42 Annual Report 2017 43

2 Strategic Partnerships

Strategy

The National Shipping Company of Saudi Growing and developing businesses to increase revenues. Arabia, Bahri, works Developing the Company into a in accordance with a global provider of logistics services.

five-point strategy that Achieving a leadership position in shapes its investment providing logistics services in the Kingdom. and growth vision Diversifying Bahri’s revenue base for the logistics and through expansion in logistics transportation services operations. sectors, both in the local Creating added value for the and global markets. This Kingdom, shareholders and staff. strategy can be outlined as follows: 44 Annual Report 2017 45

2 Strategic Partnerships

Bahri’s Strategy and Saudi Vision 2030

Bahri developed its five-point The Saudi Vision 2030 was announced A result of this restructuring is the strategy in 2017, in line with the by HRH Crown Prince Mohammed bin establishment of the Red Sea Gateway Kingdom’s objectives. This strategy Salman, Minister of Defense, Chairman Terminal, which acts as Saudi Arabia’s also aims to realize the Saudi of the Council of Economic Affairs latest state-of-the-art container Vision 2030 through participation and Development, and Chairman of terminal. It was developed through a the Public Investment Fund (PIF); and prosperous Saudi-Malaysian venture in national efforts to develop approved by Custodian of the Two Holy as well as local and global capital the logistical services sector via Mosques King Salman bin Abdulaziz. investments. It is the first private sector effective partnerships with global It has laid the operational basis for the venture in transportation and is in line logistics leaders. The Company maritime industry while highlighting the with the Saudi Vision 2030’s aim to also plans to partner with a Kingdom’s role as a key player in the engage the private sector in driving the region, especially with its coastline of Kingdom’s economy. group of investors in a project to more than 1,500 miles. develop the free industrial zone Great importance has been placed on As the Kingdom started adopting a overlooking the Red Sea, in turn this sector, resulting in the development new approach towards managing boosting the capability to drive of many national strategies and plans. its economic affairs and facilitating further macroeconomic benefits sustainable development in accordance 90% for the Kingdom and enable As the loads of commercial ships with the Saudi Vision 2030 and the increase and global transportation National Transformation Program optimal utilization of its geographic traffic expanded, the Kingdom has (NTP), attention again turned to Saudi of the Kingdom’s location. In turn, this will allow the started to increase its businesses in this seaports due to the important role they imports and country to secure a large share of vital sector by building modern ports are expected to play in the country’s exports are the maritime transportation market. supplied with the latest equipment and ongoing economic diversification. The The Red Sea project is a strategic capacities to provide the best services Vision 2030 is based on certain key delivered center for shipping and a promising to customers. pillars, among which is Saudi Arabia’s strategic geographical location as through maritime industrial zone that can be a pillar The government had previously entirely a key global gateway and hub that routes for the marine transportation and financed the operations of Saudi ports. connects three continents while being shipbuilding industries, especially However, a royal decree was issued to surrounded by the most important with the construction of the first procure the ports’ jetties, equipment, marine channels. shipyard in the Kingdom that will and operations and offer these assets Therefore, Saudi seaports will have to the private sector on a lease basis many responsibilities and challenges support the shipbuilding and heavy through a public tender process. ahead. They are succeeding especially metals industry. This major transformation in the way as Saudi Arabia’s ranking in the Saudi ports operate led to a transfer Logistics Performance Index (LPI) of such costs from the government increased from 49 to 25 globally and to the private sector and increased first regionally. government’s returns on seaport operations to more than SAR4.5 billion. 46 Annual Report 2017 47

2 Strategic Partnerships

Bahri’s Strategic Partnership at Ras Al-Khair Industrial City

In May 2017 Bahri concluded a joint international standards. venture with Saudi Aramco, Lamprell Plc and HHI for the establishment Saudi Aramco has also signed and operation of an international other key partnerships including a maritime yard in the King Salman preliminary agreement to build the International Complex for Maritime first Saudi-built offshore drilling Industries and Services at Ras Al- platform designed in line with world- Khair Industrial City, which is situated class standards by 2019, as well as by the coastline of the Arabian Gulf in the first domestically-produced VLCC the northeast of Saudi Arabia. sailing around the world by 2021.

This cooperation is in line with Bahri’s Initial production of the complex commitment to realizing Saudi Vision is expected to start in November 2030. It will contribute to economic 2018. This will be followed by diversification and increase the operation of the drilling equipment in country’s gross domestic product February 2019, shipyard in 2020 and over the long-term. It will also maintenance and renovation area in King Salman International Complex for Maritime Industries and Services - Ras Al-Khair develop local industry and the 2021. Total production capacity will services sector while supporting the be completed by 2022. transportation and logistical services sectors. Furthermore, it will create thousands of new and sustainable job opportunities and nationalize expertise related to the maritime industries. This strategic agreement aims to leverage increasing demand for services and maritime industry services in the region, by providing Bahri’s competitive and high-quality solutions designed in line with stake 10% 19.9% Partners’ Stakes SAR-522.38 20% Million Bahri, has invested around SAR3 billion in the King Salman International Complex for Maritime Industries and Services and holds a stake of 19.9 percent worth SAR522.38 million. Its partners’ shares in the project are worth SAR2.625 billion, with Saudi Aramco holding 50.1 percent, 50.1% Lamprell Plc 20 percent and HHI 10 percent.

Bahri’s partners’ financial contribution isSAR-2.625

The total cost of the project is SAR-3 billion 48 Annual Report 2017 49

2 Strategic Partnerships

Project Goals

The King Salman International Complex for Maritime Industries and Services at Ras Al-Khair aims to:

• Facilitate and benefit from rapidly growing maritime production in the Kingdom. • Diversify economic income sources. • Build local manufacturing and designing capabilities. • Develop global competitiveness and provide cutting edge products and services in the region.

Profile & Industrial Strategy

The King Salman International Complex for Maritime Industries and Services covers five square kilometers and runs for four kilometers along the eastern coastline of Ras Al-Khair. It is composed of four operational zones comprising seven dry docks and 17 berths.

The First The Second The Third The Fourth Zone Zone Zone Zone

Responsible for Responsible for The Complex’s This zone is dedicated repairing and repairing and largest zone to marine works, maintaining ships and developing marine handles commercial and has an annual drills. It consists of support vessels. It shipbuilding. It has production capacity three dry docks, 12 has a production the capacity to build of 11 fixed offshore anchorages and fully capacity of 25 vessels all kinds of ships platforms and 4 more equipped workshops and can repair 115 using the latest drilling platforms. for all maintenance marine support production methods, The zone comprises a and renovation works, vessels a year. This and comprises three dry dock for building with a capacity of zone will comprise dry docks and six fully drilling equipment with over 15 drills and 130 nine anchorages equipped anchorages. a lifting capacity of up ships a year, including in addition to fully The annual to 10,000 tons. VLCCs. equipped workshops production capacity for repairing ships. is three VLCCs and 15 commercial ships. 50 Annual Report 2017 51

Chapter Three 3

Results and Achievements of Strategic Business Units

Bahri Oil 54 Bahri Chemicals 60 Bahri Logistics 66 Bahri Dry Bulk 70 Bahri Ship Management 74 Bahri Data 80 52 Annual Report 2017 53

3 Strategic Business Units

This year has been characterized by many achievements, partnerships and new opportunities in regional and global maritime industries. Bahri’s six divisions worked on developing their respective businesses in line with Company’s strategy of expansion into new operational areas and delivering unparalleled services to its customers.

The following pages offer insights on some of the key achievements of Bahri and its subsidiaries : 54 Annual Report 2017 55

3 Strategic Business Units 1 Bahri Oil 56 Annual Report 2017 57

Strategic Business Units 3 VLCC voyages based on itineraries for 2016 – 2017 1 Bahri Oil 150

Fleet expansion enhances efficiency, customer focus 120

Bahri Oil is the world’s largest crude oil market, Bahri Oil continued Heavy Industries (HSHI) built the ships crude oil transporter with an owned to maintain its leadership position in at the company’s ship building base in fleet of 41 vessels and annual dead the global VLCC market in terms of South Korea. 90 weight tonnage (DWT) capacity volume. The challenges of the year of nearly 13 million tonnes as of were primarily triggered by the cuts The introduction of additional new December 31, 2017 and is still in oil production and the continued ships helped us to improve our fleet’s growing. expansion of the global trading fleet. operations efficiency, delivering a lower average bunker consumption 60 The quality of our vessels and our We added five newly built VLCCs to rate and offering a greater degree services, along with our competitive our fleet in 2017, taking the number of optimization opportunities. An pricing, make us the natural partner of our owned vessels to 41. The expanded fleet also enabled us to of choice for our customers, the top new vessels boast state-of-the-art reduce our dependence on spot oil producers in the world. Though quality in terms of advanced marine market tonnage, resulting in improved 30 2017 was a challenging year because technology and significant reduction margins. of fluctuations and uncertainties in the in fuel consumption. Hyundai Samho

More growth in 2018 0 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017

Our fleet growth will continue well our portfolio. We won two new and percent of the total voyages while the The The The Yanbu Ain The Sidi Kerir The The Yanbu The The The West UKC Arabian Arabian Arabian Sukhna Arabian Arabian Arabian Caribbean Caribbean Caribbean Africa into 2018. HSHI will deliver five reputable customers in the Atlantic balance originated from the Red Sea, Gulf Gulf Gulf Ain Gulf Rotterdam Gulf Gulf Onsan Singapore more newly built VLCCs during the market during the year. Our existing Mediterranean, West Africa, Brazil, US Sukhna Yanbu India Singapore China China first half of 2018, bringing the total customers also benefited from the Gulf and Caribbean regions. The US Yanbu Ain Okinawa Rotterdam Onsan number of our owned vessels to 46, availability of Bahri vessels in the We also continued our strategic Sukhna strengthening Bahri’s position as the US Gulf to take advantage of the US efforts to increase our voyages to the largest independent VLCC owner and crude oil export program. Our vessels East. Bahri undertook 39 voyages operator in the world. These vessels lifted 10 backhaul cargoes from the for Charter Ownership Agreement will further improve Bahri’s fleet US Gulf during the year. Customers (COA) during the year. Comparison of the number and percentage of VLCC’s efficiency and financial performance voyages in 2016 - 2017 by optimizing bunker consumption. Bahri performed a total of 387 voyages during the year, transporting The fleet expansion also serves our 785.5 million barrels of oil around Operation Type 2016 2017 diversification strategy, enabling us to the world. Cargoes originating from grow our customer base from 2017 the Arabian Gulf comprised 63 and add new geographic routes to No. of VLCCs No. of VLCCs

Ras Tanura to the USA 132 84 Ras Tanura to Yanbu 64 77 Bahir Oil’s fleet Ras Tanura to Ain Sukhna 39 46 Yanbu to Ain Sukhna 71 58 Ain Sukhna to Yanbu 1 - Ras Tanura to Okinawa, Japan 4 3 387 785.5 63% 37% 39% Sidi Kerir to Rotterdam 32 25 voyages million oil of voyages of voyages voyages Ras Tanura to Rotterdam 5 - undertaken barrels were oil were from were made Ras Tanura to Onsan, South Korea 33 27 during the transported shipments the following from the Yanbu to Onsan, South Korea 4 10 year around the from Ras regions: Arabian Gulf The Caribbean to India 24 27 world Tanura The Red Sea and the Red The Caribbean to Singapore 4 6 The Mediterranean Sea Sea to the The Caribbean to China 17 20 West Africa Brazil Far East West Africa to China 10 11 The American Gulf Coast The North Sea (Rotterdam) to Singapore 2 1 The Caribbean Total Voyages 442 395 58 Annual Report 2017 59

3 Strategic Business Units 1 Bahri Oil

Backhaul voyages NPS performance

The number of backhaul voyages This improvement in backhaul voyages in spot demand. Bahri negotiated three We adopted the new ISO 9001:2015 two sections, with different sets of carried out by Bahri vessels rose from had another positive impact on our Charterg in Agreements with reputable quality standard in 2017. This questions addressed to customer 55 in 2016 to 60 in 2017. This was due overall fleet utilization because of the VLCC owners and operators at agreed transition is a significant quality executives and operations staff. The to the increased utilization of Bahri shorter return ballast voyage from India discounted rates. management milestone for us as the higher scores (see table below) show vessels on the AG West route which in comparison with Singapore or China. new standard has a stronger focus on that Bahri’s success in providing meant greater availability of owned the customer – as was evident from high quality and cost-effective our outstanding 2017 Net Promoter services to its customers are being vessels in the backhaul market. In Bahri’s spot vessel requirement fell particular, the number of voyages Score (NPS) results. Bahri Oil’s NPS acknowledged and rewarded. from 144 in 2016 to 84 in 2017, as our survey for the year was split into serving Indian customers increased newly acquired VLCCs reduced spot significantly, from 19 in 2016 to 26 in market needs. The reduction in global 2017. oil volumes also contributed to the fall 2016 2017

Executives 9.0 9.8 Operations 8.6 9.3 ABOSF

The APICORP Bahri Oil Shipping Fund ABOSF and managed and operated by (ABOSF) made considerable progress Bahri. Bahri and the Arab Petroleum in 2017 in discussions with a number Investments Corporation (APICORP) Other achievements of local, regional and international signed the agreement to establish banks to raise finances to invest in ABOSF in 2016. At the annual Bahri Oil Transportation to strengthen its maritime fleet in new VLCCs. The first investment fund Forum held in Dubai during the Bahri partnership with the private sector, under the agreement will be finalized Oil week in November 2017, we reinforcing the Kingdom’s established in 2018, enabling us to acquire up to brought together industry leaders position in the oil industry in particular five VLCCs, which will be owned by the for a dicussion on “tanker market and the maritime transportation opportunities and challenges”. The industry in general. event was a great success with a This will contribute to the majority of the large tanker owners, transformation of the Kingdom as the operators and brokers getting most important and largest logistics together to exchange thoughts and hub in the region, as envisioned in views on our industry. Saudi Vision 2030. The increase Once again, the global industry of the national flagged fleet will recognized Bahri’s achievements contribute to increasing the volume of in 2017 by bestowing the most bilateral maritime trade between the prestigious Maritime Standards and Kingdom and other global economies, Lloyds List awards. These included in addition to creating a positive the Ship Owner/Operator of the Year, impact on the continued growth of the Shipping Company of the Year the maritime transport sector in the and the Transport Company of the Kingdom and the region. Year award from MEED. In coordination with the Public Transport Authority (PTA) of Saudi Arabia, Bahri raised the Saudi flag on 31 of its VLCCs and five product tankers. Bahri is committed to supporting Saudi Arabia’s drive 60 Annual Report 2017 61

3 Strategic Business Units 2 Bahri Chemicals 62 Annual Report 2017 63

3 Strategic Business Units 2 Bahri Chemicals

Fleet growth and optimization deliver stronger performance

With 36 commercially managed IMO2 The increase in the number of ships, steady stream of new vessels entering MR vessels, Bahri Chemicals is now achieved through our robust and the market and affecting the supply- the largest global operator in this long-standing partnerships, led to a demand dynamics, represented the segment. Bahri Chemicals provides substantial increase in volume and main challenges during the year. maritime transport of liquid bulk revenue during the year. chemicals from the Middle East to the These challenges were particularly 36 West and to the East; our operations Our performance, relative to our felt in the CPP and vegetable oil Tankers also include the shipping of Clean peers, continued to improve in 2017 segments, which have historically Petroleum Products (CPP) and due to a strong focus on efficient been more volatile. These segments, vegetable oils. execution of our long-term trading however, continue to offer significant strategy. A significant increase in potential for us to grow our revenue Bahri Chemicals achieved dramatic bunker prices, however, led to an stream when the market turnaround growth in 2017, with the number of increasingly challenging environment happens after absorption of the recent vessels in the fleet under commercial during the year. This increase in fleet growth. 23 management growing from 24 to 36. bunker prices, combined with a Tankers

Tankers14 Tankers12

Bahir Chemicals Fleet 2017 2016 2015 2014

13 16 6 5 3 1 13 IMO II MR IMO II MR IMO II MR MR product Stainless IMO LR chemical 2017 36 31 coated chemical coated coated tankers steel high- waste tanker Bahri commercially tankers tankers chemical chemical Capacity: specification belonging to Capacity: tankers tankers 50 k DWT tankers the International Chemicals managed owned by 46 k DWT Capacity: Capacity: 46 k Chartered Maritime Fleet tankers Bahri Operating under 46 k DWT DWT for Saudi Organization commercial Operating in Chartered for Aramco Capacity: management the Instant SABIC 83 k DWT Fleet Chartered for SABIC 64 Annual Report 2017 65

Strategic Business Units 3 Challenges

2 Bahri Chemicals One of our major challenges in with US$249 per metric tonne average 2017 was the increase in bunker in 2016). The steady supply of new prices, which added significantly tonnage entering the market has also to our costs. Overall, the bunker put pressure on freight rates during the price differential between 2017 year. and 2016 represented an average increase of around US$91 per metric tonne (US$340 per metric tonne average in 2017 compared Fleet strategy

Our vessels continue to maintain their reputation for safety. They are among the safest high-quality chemical tankers in the world today. Our owned fleet of 31 vessels includes:

• three high-specifications stainless asset classes – including stainless The need for continued growth is steel vessels (on bareboat charter); steel ships – which will support our related to the increasing logistics needs clients’ logistics needs across a of our close partners SABIC, Saudi Fuel saving initiatives • six IMO2 MR coated chemical broader product range with different Aramco and other leading regional tankers, about 46k DWT each, transportation requirements. Stainless producers together with what we see Fuel savings represented an • Close follow-up from operations commercially operated by Bahri steel vessels are ideally suited for as healthy demand dynamics across average reduction in daily bunker ensuring optimal speed at all times; Chemicals and are on-time charter the transportation of specialty and our growing global client base. to our largest client and partner the consumption of about five metric corrosive chemicals as well as a wide • Weather routing software helping Saudi Basic Industries Corporation tonnes per ship. We achieved this range of other products. vessels get shore assistance on (SABIC); through consistent efforts over the past several years to lower fuel most efficient routing; • 16 IMO2 MR coated chemical consumption through a wide range • New hull coating helping to tankers, about 46k DWT each of initiatives including: (operated in the spot fleet); • New tank coatings helping to decrease time spent on cleaning • five MR product tankers, about 50k between voyages, resulting in time DWT each (on-time charter to Saudi and bunker savings; and Aramco Trading); and • Investment in various fuel saving • one IMO LR chemical tanker, about equipment on the ships. 83k DWT (on-time charter to SABIC, operationally managed by Bahri Chemicals).

We are targeting continued growth of our IMO2 MR fleet in tandem with growing our cargo base. Additionally, we are also diversifying into different Looking forward

We will continue to explore strategic partnerships with a view to grow The market’s recovery in the short and diversify our fleet. Expanding to medium term will depend on its Scale and optimization our global presence and broadening ability to absorb the supply side our product offering remain strategic growth we have witnessed over the priorities and we will continue to last few years. With the demand Our strong performance compared with Bahri Chemicals is also increasing invest in assets, initiatives and side remaining healthy and new ship industry peers has been achieved by its global presence by opening more programs to ensure cost-efficient and orders significantly reduced, there is focusing on improving scale and asset commercial representation outside top-quality cost efficient services for reason for optimism in 2018-2019 and utilization. We improved asset utilization of the Middle East. We have already our clients. beyond. by securing a strong foothold in other established our representative office segments such as CPP and vegetable in the Americas and plan to set up our oils, enabling us to return the vessels to presence in Asia in 2018. the region in a laden condition.

66 Annual Report 2017 67

3 Strategic Business Units 3 Bahri Logistics 68 Annual Report 2017 69

3 Strategic Business Units 3 Bahri Logistics

Bahri Logistics, established in 1979, In 2011, Bahri Logistics upgraded its Bahri Logistics’ objectives are in Bahri Logistics Fleet was the first strategic unit to be services by signing contracts with line with the Saudi Vision 2030, established within the Bahri Group. large corporations such as Saudi which aims to make the Kingdom of Bahri Logistics adopts a unique Aramco, the Saudi Railway Company Saudi Arabia a logistics hub in the approach by concentrating on (SAR), Saudi Electricity Company region and to make Bahri the first Bahri Logistics operates six new state-of-the-art providing an optimal mix of shipping (SEC) and Riyadh Metro project. national company representing the services. It regularly operates six government in this industry locally, multipurpose vessels as follows: new state-of-the-art multipurpose Bahri Logistics is distinguished by the regionally and globally. vessels connecting the Kingdom of fact that it is a national Company with Saudi Arabia with key seaports in the a Saudi nationalization percentage of Arabian Gulf, Indian subcontinent, more than 90 percent. It has branches Mediterranean region, North America in Dammam, Jeddah, Jubail, Ras Al- and Europe. Khair, Jazan and Yanbu.

years 26,000 4 2 4 tons RO-RO About Bahri Ships Ships The average 26,000 DWT is Bahri Logistics Logistics connecting the connecting age of our the capacity manages roll-on/ United States Europe to multipurpose of each vessel roll-off ships that to ports in ports in the vessels is when they are dedicated • One of the six divisions of the Bahri the Kingdom, Kingdom, four years or are operating to transport Group Gulf, Indian Gulf and less. regularly breakbulk, • Listed among the world’s top 10 subcontinent Mediterranean project bulk and breakbulk shipping operators. and the other types of • A leading operator of transportation Mediterranean. cargo. services that provides shipping from the east of the United States, the US Gulf and Canada to Jeddah, Dubai, Dammam and Mumbai every 20 days and from Europe to the Red Sea and the Arabian Gulf every 30 days. • Bahri Logistics’ ships dock in Key Achievements in 2017 Mediterranean and European seaports as part of their itinerary.

• Operates ships through seaports –– The Company signed a joint venture –– The division signed a logistics –– Cooperative agreements were signed situated in the Red Sea and Arabian agreement with Bolloré Group to services agreement with Saudi with partner carriers such as Höegh Gulf through two monthly voyages. establish BahriBolloré Logistics, with Aramco. Autoliners, Liberty Global Logistics • Provides long-term contracted Bahri owning a 60 percent stake and Rickmers-Linie. –– Alexandria Seaport was added as a services to international companies and Bolloré owning the remaining new direct port call to the company’s and Saudi governmental entities. 40 percent. The project aims to expand into the market of door-to- portfolio of ports in Egypt, enabling • Provides integrated door-to-door door logistics management and tap Bahri to offer breakbulk and roll-on/ service solutions for breakbulk into the fast-growing supply chain in roll-off transportation services on its transportation. Saudi Arabia and Gulf countries. North American itinerary.

• Manages a private container yard –– Additionally, Bahri Logistics signed –– Bahri Logistics was restructured facility at Jeddah Islamic Port. an agreement with the Saudi Railway with new departments introduced • Invests in information technology Company (SAR) under which it to further develop its services. In systems that integrate and streamline will provide transportation and addition, the ISO 2015 certificate information from ports, agents and shipping services across the world was acquired to complement the offices. to the latter’s hubs of operation in Company’s ISO 2009 certification. the Kingdom along with customs – • Operates an integrated network of clearance services. – The Company acts as the exclusive offices and agents around the world. carrier for the Saudi Ministry of Defense and Ministry of Interior. 70 Annual Report 2017 71

3 Strategic Business Units 4 Bahri Dry Bulk Sector v 72 Annual Report 2017 73

3 Strategic Business Units 4 Bahri Dry Bulk Sector

Bahri Dry Bulk was established in is focused on establishing high costs and accrue higher revenues Establishment of Bahri Dry Bulk 2010 under a joint venture agreement standards of customer service, in 2017 compared to 2016 due to between Bahri and the Arabian acquiring state-of-the-art ships its increased market share. The Agricultural Services Company designed in line with international opportunity to acquire an even (ARASCO) with the mandate to standards and providing a team with larger market share by concluding The dry bulk industry has witnessed a state of balance between supply and demand acquire, own, charter and operate a high levels of expertise. agreements with government fleet of dry bulk carriers. entities and international companies in 2017, in addition to an improved daily rate for ship chartering. The dry bulk sector in 2017 has is currently being studied. This joint venture paved the way experienced a state of balance in for Bahri to diversify its dry bulk terms of supply and demand in As part of its business strategy, Bahri transportation services, which addition to an improved daily rate Dry Bulk targets all international account for 23 percent of cargo for ship chartering. The market markets that have dry bulk related Updated imported to Saudi Arabia. embarked on a restructuring that will businesses, starting with the local be completed by 2020 and will ensure market in the Kingdom to Gulf nations, With its offices spread across the higher stability and revenue potential. African countries such as Egypt technical Kingdom and abroad in Dubai and Morocco and Asian countries and Egypt, Bahri Dry Bulk is the Bahri Dry Bulk owns a high- including China, India and Indonesia. 2010 1 34 systems only national operator of dry bulk specification and state-of-the-art fleet transportation in the Kingdom. It that was able to reduce operational Bahri Dry Bahri Dry Bulk is of the largest We improved Bulk has been the only national companies the quality of the established under company around the Company’s services a joint agreement for dry bulk world are by working according Key Achievements in 2017 between Bahri transportation in included in our to regulatory and the Arabian customer base. procedures and new the Kingdom. • Bahri Dry Bulk worked towards • Concluded a joint-venture • Implemented an updated technical Agricultural operations. furthering its fleet capabilities by agreement with Dutch firm system to improve the quality of the Services Company adding four new vessels designed Koninklijke Bunge B.V. (Bunge), Company’s services. (ARASCO). according to the latest international with Bahri owning a 60 percent technical specifications. They will stake and the remaining 40 • Implemented stringent regulatory be delivered by 2020 under an percent owned by Bunge. The procedures and new processes. agreement signed with HHI. agreement will lead to the launch of the unprecedented joint venture • Established representative offices • Launched an initiative in 2016 that BahriBunge Dry Bulk Ltd. with around the world. aimed to secure a fresh market US$35 million of capital investment. share in the region by attracting • Developed a customer base new customers and increasing the • Built an integrated team of experts that includes 34 of the largest volume of bulk transported to 5 drawn from the business and companies around the world and is million tons – a 25 percent volume operational fields. still growing. increase compared to last year. • Signed an agreement with Bahri Big Data to identify future opportunities through market forecasting and improving operations.

Million 2020 5 Tons Bahri – Bunge

Addition of four new A new market Handles commercial vessels designed share target led management of dry in line with the to an increased bulk carriers and serves latest international transported cargo dry bulk customers specifications to volume of 5 million in transporting cargo Bahri Dry Bulk’s fleet. tons around the world to and from the region. 74 Annual Report 2017 75

3 Strategic Business Units 5 Bahri Ship Management 76 Annual Report 2017 77

3 Strategic Business Units 5 Bahri Ship Management

Sustained quality focus leads to global recognition

Bahri Ship Management operates We added seven new vessels to Our core strength is our people. and manages the vessels owned by the Bahri Ship Management fleet in We now employ over 3,000 highly our Group, ensuring the safety of 2017: five VLCCs and two chemical skilled multinational seafarers within our people, and the environment, tankers. These additions brought the managed fleet. As well as while serving the needs of our the number of vessels under our employing foreign nationals, Bahri business and customers. technical management to 85. In contributes to the development of order to maintain the vessels to Bahri the maritime industry in Saudi Arabia. It has been a year of all-round standards and comply with Class As Saudi Arabia’s shipping sector achievements for Bahri Ship and Statutory requirements, we dry- grows, it is essential that the sector Management. The growth of our fleet, docked nine VLCCs and six chemical develops a qualified and trained our continued focus on safety and ships during the year. We planned national workforce for maritime jobs. sustainability initiatives and consistent the dockings carefully to minimize Vocational training is a vital part of improvement in efficiency and vessel turnaround time without Bahri’s sustainability plans, and in performance led the list of Bahri Ship compromising customer needs and 2017, we invested in a program of on- Management achievements. quality. board safety training for seafarers. We trained 57 cadets from King Abdulaziz We reflagged 36 of our vessels University and 41 from Saudi Aramco with the Saudi flag during the year, during the year, offering instructions underlining our commitment to on the most recent updates on safety strengthening Saudi Arabia’s position and quality regulations. This training in the international maritime sector program to develop potential officers and increasing the size and reputation of the future will continue in 2018. of the Kingdom’s global fleet. Bahri now accounts for 84 percent of vessels carrying the Saudi flag, with nearly 5.2 million combined total gross tonnage. Bahri trained 11 employees of the Saudi Public Transport Authority at its offices in Dubai, and 15 employees from the Dammam Major Awarded the Pilotage Department as part of the ISO 9001 and 14001 certifications reflagging initiative. achievements in recognition of its performance and quality services We rely on teamwork, innovation and technology to achieve all-round excellence. We set ourselves challenging Key Performance Indicators (KPIs) that exceed existing industry standards or set new benchmarks. Rigorous and continuous compliance audits, preparatory drills and certification reviews are all part of our efforts to sustain excellence.

This commitment brought us excellent results: The “Lloyd’s” List Ship The “Maritime Standard’s” The “QUALSHIP 21” certificate Operator Award award for Ship Manager of by the United States Coast Guard the Year valid for three years due to its rigid • Bahri was named the Ship Marine Forum (OCIMF). With our detentions were recorded. Our fleet quality and safety standards. Manager of the Year at the 2017 safety and quality achievements underwent 28 inspections by the Maritime Standards Awards, consistently outperforming industry US Coast Guard during the year Ship Operator of the Year at the benchmarks, Bahri continues to with no negative observations. 2017 Lloyds List Awards, and be recognized as a top quality we were finalists for Safety and operator for major customers • Bahri Ship Management completed Environmental Compliance awards such as Saudi Aramco, BP, Shell, the DNV-GL ISM and ISO audits from both organizations. ExxonMobil and Total. during the year, pioneering the new “Fit-For-Purpose” audit • Bahri improved its Ship • In Port State Control (PSC) scheme. These audits confirmed Inspection Report Program (SIRE) performance, Bahri’s performance the strength of Bahri’s quality 85 84% 5.2 11 15 performance by 12 percent, in 2017 was 13 percent better than management system with zero finishing the year 30 percent better the 2016 average and again zero non-conformity or observation. Ships Of Bahri’s Total capacity Trained 11 employees Trainees from the Maritime than the global industry average managed by ships fly the of 5.2 million from the Saudi Public Consulting Center in Dammam of the Oil Companies International Bahri Ship Saudi flag tons. Transport Authority’s (affiliated to the Saudi Ports Management staff at Bahri’s offices Authority) were also trained as in Dubai part of an initiative to support the maritime industry in the Kingdom. 78 Annual Report 2017 79

3 Strategic Business Units 5 Bahri Ship Management

Safety is top priority

The safety of both seafaring and office- Our internal safety programs focused on based staff is top priority for us. As strengthening staff awareness through part of our continuing efforts to improve surveys and continued training. One safety across the organization, Bahri of the most important and popular entered into a partnership in 2017 with achievements was our success in Lloyd’s Register’s Human Element team. simplifying the safety regulations, This joint enterprise helped our people making complex issues more accessible make improvements in our already to be read and understood by our strong safety culture. This partnership multinational and multicultural staff. will continue into 2018.

Efficiency watch

Our ship management team monitors and propellers are matched and tested Bahri’s strengths of safety, quality and ships’ speed, fuel consumption and extensively during the building of new teamwork delivered increased efficiency hull fouling, using intelligent monitoring ships to ensure optimum propelling and decreased running costs in 2017. systems and high-performance cargo efficiency and minimum emissions. Yet, Ship running costs and crew costs were tank and hull coatings, leading to several initiatives were taken to further further optimized through proactive consistent improvement in operational broaden our green footprint by using maintenance and through strategic efficiencies. In 2017, Bahri Ship modern technologies to significantly procurement. This focus on operational Management was one of the first reduce the impact of greenhouse gases efficiency saved us SAR27 million during shipping companies to comply with the nitrogen oxide (NOx) and sulfur oxide 2017 – SAR6 million in savings from European Union’s requirement to submit (SOx) emissions from docked vessels. the dry-docking of vessels and SAR21 MRV (Monitoring, Reporting, Verification) Propelling efficiency was optimized million in ship running costs. plans for the full fleet, well ahead of the whilst significantly reducing fuel deadline. consumption by using better Hull Paint systems, installing Mewis ducts and Our new vessels are equipped with Propeller Boss Cap Fins. modern fuel-efficient engines that comply the most stringent emission regulations in force. Hull structures

Cost savings Cost Ship type Cost savings (SAR) (percentage) reductions in fleet VLCCs -4.4% 18,804,941 operations and Product carriers -4.3% 1,895,719 maintenance in Dry bulk carriers -1.1% 335,344 2017 compared Breakbulk carriers -1.2% 484,538 to 2016 Chemical tankers -1.0% 1,817,790 NCC products 6% ) 2,258,438 ( Total Savings 21,079,894 80 Annual Report 2017 81

3 Strategic Business Units

6 Bahri Data 82 Annual Report 2017 83

3 Strategic Business Units 6 Bahri Data

Delivering value through innovative solutions Innovative solutions Bahri Data’s focus is on leveraging their performance consistently. • Bahri businesses science, technology, data and cross- We use big data, the Internet of • Bahri customers BRISO At Bahri Data, we are also creating bespoke big data applications for the functional collaboration to deliver Things (IoT), Artificial Intelligence • Maritime industry value—to Bahri and the maritime (AI) and Machine Learning (ML) to maritime industry. In 2017, Bahri Data and DNV-GL, the global quality A platform that provides industry. conceive and develop new software Established in 2015, Bahri Data assurance and risk management company, co-developed a new maritime various information Data has become significant in and platforms aimed at enhancing has proven to be a major success application called Safe Seas which is an innovative solution that will which makes operations modern business for a reason: efficiency and performance. in offering innovative business promote maritime safety, security, quality as well as compliance with through data analysis, we gain great enhancement tools, and is also more intelligent and global industry regulations. business insights and foresights Our business model allows us to serve beginning to create new revenue customer service more Advanced analytics enables Bahri three distinct sets of stakeholders: streams for the Company. We showcased the prototype of Safe Seas at the Bahri Data Forum in effective businesses to monitor and improve November 2017. Our partnership with DNV-GL is part of our strategy of collaborating and partnering with industry leaders to deliver additional value where possible to Bahri and maritime industry in general. Safe Seas will use DNV-GL’s Veracity platform to provide a simple solution for all Achievements stakeholders – fleet owners, operators, charterers, port authorities and Ship fuel management regulators – to keep track of safety, quality and compliance. One of the major achievements of Bahri Data is the We believe that data and analytics are great tools for the global maritime Ship chartering development of Bahri Realtime Integrated Systems industry to tackle major challenges such as overcapacity, weak demand based on data Operations (BRISO). BRISO is a platform that integrates and tight margins. Data and analytics also have an important role to play in diverse information related to shipping business, ranging addressing the other industry issues such as our environmental footprint. Managing business from weather prediction to rate prediction, to enable voyages of ships better and more efficient, evidence-based decision- making. Fleet developed BRISO will help Bahri to grow revenues, optimize costs, operations make the operations smarter and improve customer Recognition service by influencing diverse areas of the business, such Ships that are connected as: to each other The maritime industry has recognized Bahri Data’s capabilities and • data-driven chartering, contributions. Over the past two years, we have received four major Preventive maintenance • voyage management, industry awards: • smarter fleet operations, Cargo-related • connected ships, 1) Lloyd’s List Awards 2016 (Innovation) • predictive maintenance, predictions 2) Lloyd’s List Awards 2016 (Big Data) • cargo predictions, and • prediction of customer needs. 3) SeaTrade Awards 2017 (Newcomer of the Year) Customer-needs 4) Lloyd’s List Awards 2017 (Innovation) predictions In 2017, we worked closely with Bahri Ship management and other internal stakeholders to conduct data-based reviews of operations and reduce operating costs. Data analysis contributed to reducing costs in four significant areas: bunker management, speed volatility management, maintenance and crewing. During the year, we transformed the BRISO platform into a revenue-centric model by adding features such as: • commodity tracker, which allows us to monitor commodity movements globally to understand the changes in shipping demand and recognize emerging new trade routes; • third party vessel TCE prediction, providing charterers information about any ship’s time charter equivalent; • vessel trade patterns, enabling executives and charterers to gain market insights and emergence of new trade routes; and • freight rate predictions based on trade routes, providing charterers with actionable insights on vessels. 84 Annual Report 2017 85

Chapter Four 4

Supporting Bahri’s supporting departments play a critical role in Departments driving the growth and supporting our main strategic business units. They provide the capabilities and infrastructure that propel Bahri’s business and help the Company achieve its objectives. These Human Resources 86 departments consist of Human Informatiom Technology 90 Resources, Informatiom Quality 92 Technology, Quality, and Marketing and Marketing and Communications 94 Communications. 86 Annual Report 2017 87

4 Supporting Departments 1 Human Resources

At Bahri, we believe human A particular work culture is also talents drive our reputation as a embedded in the Company that leading service provider and as a aims to stimulate production and benchmark in excellence globally. encourage innovation in a way Our Human Resources team is that does not compromise our dedicated to attracting the best employees’ work-life balance. talents and investing in them through programs that contribute to their professional development in line with the Company’s aims and objectives.

Saudi Nationalization

65% Platinum

We have a Bahri has achieved nationalization rate platinum classification, the of more than 65 highest possible level that percent among our companies can achieve Saudi-based staff. for their efforts in meeting nationalization targets.

Training and Development

Bahri is committed to investing in its human resources. The Company engages its staff in leadership, administrative and technical courses. Training programs have been organized for Bahri’s staff in: 388 264

- The Kingdom of Saudi Arabia Number Employees - The United Arab Emirates of enrolled - The United States of America courses to training - India courses 88 Annual Report 2017 89

4 Supporting Departments 1 Human Resources

Automation

Bahri has invested in automating all human resources services٫ specifically for employees as part of ongoing efforts to improve day-to-day business efficiency. Global systems implemented at the organization include Oracle and SAP. Graduate Training and Ongoing Development

Bahri offers training and development programs for new Saudi recruits as follows:

1 MAHER

• MAHER is a training program that aims to develop fresh Saudi graduates through an intense 12-month course delivered on-the- 15 job. Trainees are placed with one of our strategic business units within the Kingdom or abroad. The program provides trainees with Graduates from the necessary knowledge and skills to take up senior positions MAHER Program following successful completion of their training.

• For Saudis only.

2 3 Bahri Continuing Cooperative Education 100% Training Program University Program Full financial support for Bahri employees Helps Saudi university students Bahri offers 100% financial who are interested transition smoothly from the support for employees wishing to classroom to the workplace. complete a degree. to complete their degree. 90 Annual Report 2017 91

4 Supporting Departments 2 Information Technology

Our IT Department plays a key role in extending the Company’s leadership and competitive role in the maritime transportation industry. It helps raise quality and safety standards, supports and develops the performance of Bahri’s staff and serves customers and shareholders in line with ongoing and rapidly changing technology and global systems. Key Achievements in 2017

The IT Department has had a successful 2017 characterized by the following achievements:

• Development of the 2020 Strategic Transformation Plan that includes 55 IT initiatives to be executed within three years. • Application of a workforce management system for human resources that incorporates functions for employee performance, training, career development, bonuses and promotions. • Development of an internal e-portal for self-services in addition to providing easy-to-use smartphone applications. • Development of a special application for tracking cargo that is compatible with Android and Apple devices and includes many electronic services for logistics customers. • Adoption of a new trading system for the dry bulk sector and linking it to global stock exchanges. • Application of a new sales and customer services system for the logistics sector. • Development of intelligent reports that provide data analysis for all sectors and departments across the Company. • Conducted reviews of financial systems and improved them so they comply with International Financial Reporting Standards (IFRS) and Value Added Tax (VAT) regulations. • Linked payment systems outside the Kingdom with banks in addition to applying new financial, operational and commercial systems and linking them all with internal systems. • Improved information and risk assessment infrastructure and implementing necessary procedures. • Restructured the department in line with the growth and needs of business units. • Adopted a stringent Service Level Agreement (SLA) in line with the implementation of new technical systems.

Key Projects for 2018

• Development and application of a self-service portal for all customers of the Company. • Integration of Bahri’s systems with those of the Company’s main customers, ports, banks and strategic partners. • Application of an advanced employment e-system for employment that aims to develop new employees before and after they join Bahri. • Implementation of an innovative management system that aims to develop all of the Company’s operations incorporating creative and pioneering ideas. • Introduction of an electronic procurement system and e-portal for approved suppliers. • Replacement of the current ship management system with a new system that manages all sea-based employees’ work, maintenance and operation of ships, spare parts procurement, safety and security and environmental management. • Review and implement upgrades to current systems controlling operational and commercial work for the Oil, Chemicals and Dry Bulk units. • Establishment of an IT project management system that manages the execution of all IT initiatives. • Evaluation of all systems from a security perspective,and improving them to match international standards. • Adoption of systems for internal auditing and risk management as well as strategy execution. • A review of updates to all systems, regulations and information technology procedures. 92 Annual Report 2017 93

4 Supporting Departments 3 Quality Department

The Quality Department oversees the development and implementation of quality assurance systems, in addition to optimally executing policies and procedures through important initiatives that aim to foster a culture of innovation in line with Bahri’s strategic plans.

Key Achievements in 2017

• Automation of all procedures based on methodologies that promote and control quality using SIPOC software and shifting to automated and digital applications.

• Incorporation of outstanding new programs including Salesforce, Sales Cloud and Quality World that will improve quality and risk management. Bahri Logistics have applied these programs to its operations to enhance efficiency and improve quality further.

• Implementation of strategic leadership and technical expertise standards in quality management across the Company in addition to utilizing the best performance systems.

• Raising the standard of quality management operations in line with quality compliance and strategic awareness requirements.

• Implementation of Quality World software to develop an internal website targeted to Bahri’s staff and presenting the company’s vision about quality.

• Implementation of Sales Cloud software that helps improve customer service performance in addition to the Sales Force software that enhances the performance of the Company’s sales teams.

• Reviewed and raised the standard of navigational route operations in accordance with strategic objectives.

• Utilized intelligence metrics based on Company operations and standardized them in Bahri’s maritime offices across the world including regional offices and agents. Other measures implemented include best practices on how to deal with cargo and storage, task execution scheduling, customer satisfaction indicators, control of operations and cargo not compliant with quality policies and standards, increased internal auditing and reviews of operations in order to increase application of quality standards and increase objective achievement rates.

• Developed new standards and operations that provide better service to customers in addition to the implementation of ISO 2015 to complement the ISO 9001 certification obtained in 2008.

• Organized workshops and awareness sessions on quality systems across the Kingdom and at our US offices.

• Applied the Six Sigma Approach, which is a set of techniques and tools necessary for enhancing the quality management process and used statistical tools and techniques that contribute to generating accurate reports and ensuring operational management efficiency. 94 Annual Report 2017 95

4 Supporting Departments 4 Marketing and Communications Key Achievements

The Marketing and Communications In 2016 the Bahri management Department is Bahri’s media arm team established the Marketing and in 2017 responsible for generating public Communications Department in awareness about the Company and line with its efforts to advance the highlighting its economic and social Company’s brand and facilitate further The Marketing and Communications Department roles. It also has the secondary role communication with stakeholders, succeeded in implementing its 2017 plan and of connecting all business units and customers, trade partners, financial recorded the following achievements: departments with senior managers institutions and markets inside the through networking and communication Kingdom and all over the world. programs that contribute to further development and achievements.

Objectives Events and Participation

• Developing Bahri into a leading global Company that provides integrated - Bahri’s Data Forum logistics and transportation solutions. - The Maritime Innovation and Digitalization Day • Raising awareness among companies and showcasing Bahri’s diverse portfolio - Oil Reception Week Forum - Crew Conferences (Manila, Mumbai, Russia) within the transportation industry. - Ship Technology Conference • Creating a relationship with Bahri’s employees so that they can positively - Standard Maritime Conference for Marine Carriers represent Bahri’s brand. - Launched Bahri’s offices in Mumbai and Houston • To be ambassadors for Bahri across the world. - VIP customers event in Germany - Global logistics agencies meeting - First International Symposium on Land and Maritime Border Security and Safety

Brand Creation

- Created the Bahri Bunge Dry Bulk Ltd. brand identity - Created the Bahri Bolloré Logistics brand identity

Development of Marketing Content

- Development of Bahri’s data bulletin that has been used at many events. - Launched the Safe Seas application and developed its design and content. 96 Annual Report 2017 97

4 Supporting Departments 4 Marketing and Communications

Key Achievements in 2017

Media Campaigns and Creation of more than Increased social Communications 300 job opportunities Social Media media presence

Print & Broadcast Media

Video Media Campaigns Press Ads Total Twitter Facebook

2016 2017 2016 2017 25+ 7 18 50+ 10,200 94,411 924% 8,147 71,160 873% Followers Followers Variation Followers Followers Variation Electronic

Internet Ads Internal staff messages Total 9 170+ 179+ Instagram YouTube

2016 2017 2016 2017 Events 7,806 30,674 120 755 392% 629% Branding campaigns Internal and external events Total Followers Followers Variation Subscribers Subscribers Variation 30 58+ 88+

LinkedIn Snapchat Other

2016 2017 2016 2017 Awards Road Ads Magazine 9,688 13,359 38% 2,000 3,000 50% Followers Followers Variation Followers Followers Variation 8 10+ 5000 98 Annual Report 2017 99

4 Supporting Departments 4 Marketing and Communications

Key Achievements in 2017

Bahri signed an agreement with King Abdulaziz University in line with the Company’s commitment to achieving the objectives of the Saudi Vision 2030 and supporting continuous efforts to train young Saudis, sharpen their skills and develop their experience in the maritime sector. The agreement provides the following:

• Provision of training opportunities for graduates from the Faculty of Marine Sciences on board Bahri vessels.

• Provision of intensive practical training for students enrolled in the maritime navigation and engineering program at the university. 100 Annual Report 2017 101

Chapter Five 5

Disclosure & Transparency

Corporate Governance 105 102 Annual Report 2017 103103

Disclosure & 5 Transparency

Bahri adopts a policy of disclosure All the information provided former shareholders. and transparency as stipulated by Bahri is limited to public Bahri also provides all news about in its corporate governance information that has already its performance and activities regulations and the requirements been disclosed through official through the official channels, that pertain to the presentation communication channels and such as “Tadawul” website, in and disclosure of information is consistent with the CMA accordance with CMA directives while preparing this report, directives as well as the Ministry and the disclosure policy adopted thereby ensuring that accurate of Commerce & Investment. by the Company as part of its information is delivered to Through the Company’s website corporate governance regulations. its intended audience; such (www.bahri.sa), the Company as shareholders, financiers, provides a forum for its Bahri transparently discloses all regulators and other stakeholders. shareholders and all other users to necessary information, especially Bahri’s disclosure and communicate with the Company as it pertains to its commercial, transparency policy also includes on an ongoing basis. This website operational and financial activities, sharing information related to can be used to search for any without violating confidentiality, accounting, compliance with information required, and any its trade secrets and unique corporate governance standards, updated information related to commercial know-how. details about the Board of the Company, which includes Directors and its committees, annual, quarterly, and operational as well as information about the reports, as well as the Company’s executive management and their publications, announcements, relevant tasks. and information about current and

Departure from the accounting standards There is no departure from the accounting Description of any transfer or The Company does not have any transfer or issued by the Saudi Organization for standards released by SOCPA subscription rights under transferrable subscription rights under transferrable debt instruments or any offering rights memos Certified Public Accountants (SOCPA): debt instruments or any contractual or similar rights issued or granted by the securities or any subscription rights or Company. similar rights issued or granted by the Description of any interest in a class of The Company has not received any Company: voting shares held by persons (other than notification regarding any interest in a class of voting shares. the Company’s Board of Directors, senior executives, and their relatives) that have Description of any redemption, purchase, The Company and its subsidiaries do informed the Company of their holdings or cancellation by the Company of any not have any such recovery, purchase, pursuant to Article (45) of the Listing or cancellation of any recoverable debt redeemable debt instruments and the Rules of the Capital Markets Authority, instruments. value of the remaining securities, with a together with any change to such distinction between the listed securities interest during the last fiscal year: purchased by the Company and those purchased by the subsidiaries: Description of the categories and The Company does not have any categories numbers of any transferrable debt of transferrable debt instruments, nor any contractual securities, offering memoranda instruments any contractual securities or on subscription rights, or any similar rights There is no transaction between the offering memoranda on subscription issued or granted by the Company during the Description of any transaction between Company and any related party. rights offers or similar rights issued or fiscal year. the Company and any related party: granted by the Company during the fiscal year with explanations for any compensation acquired by the Company for that: 104 Annual Report 2017 105

Disclosure & 5 Transparency

Information on any business or contracts The Company acknowledges that there is Corporate Governance where the Company is a party thereof no contract where the Company is a party thereof and where there is an interest for a and there is an interest for a Board Board member, CEO, CFO, or any person member, CEO, CFO, or any person related to them. related to them: Bahri complies with the relevant corporate governance standards, Description of any arrangements or None of the Board members or senior conducts regular review of agreement under which a Board member executives has waived any rights to salary or compensation. or senior executive has waived any rights its policies and procedures, to salary or compensation: and has established policies and procedures that promote Description of any arrangements or There is no arrangement or agreement where agreement under which a shareholder a shareholder of the Company has waived transparency and disclosure. The any rights to dividends. of the Company has waived any rights Company also implements all to dividends: obligatory provisions stated in the corporate governance regulation Description of the value of any There are no specific investments or reserves investments or reserves created for set aside for the Company’s employees, issued by the Capital Markets except those for the severance payment the Company’s employees: provisions as provided for in the Saudi Labor Authority (CMA) and its Articles Law and similar laws in the countries where there are companies wholly owned by Bahri of Association, as well as all its such as the USA and UAE. policies .

The Board of Directors hereby • The accounting records have been acknowledges the following: prepared in a sound manner. • The internal control system has been established on a sound basis and implemented effectively. • The Company’s ability to continue its operations is not subject to doubt.

The external auditor’s reservation over The external auditor has no reservations over the financial statements: the Company’s financial statements.

The Board of Directors The Board of Directors did not recommend recommendation to replace the replacing the external auditor prior to the end of the agreed term. external auditor prior to the end of the agreed term: 106 Annual Report 2017 107

Chapter Six 6

Bahri Finance Division Bahri Financials 108 Capital Structure & Financing 108 Murabaha Financing & Long-Term Loans During 2017 108 Zakat & Withholding Tax 109 Dividend Distribution Policy 109 Bahri’s 2017 Financial Performance & Comparison with 2016 110 Graph 1 – Consolidated Cashflow 110 Graph 2 – Efficiency 111 Graph 3 – Solvency 112 Graph 4 – Operating Revenue 113 Graph 5 – Gross Operating Revenue 114 Graph 6 – Consolidated Income Statement 115

Graph 7 – Total Assets 116 Bahri Five-Year Financial Results 117 108 Annual Report 2017 109

6 Bahri Finance Division

Bahri Financials Zakat & Withholding Tax

The company’s financial statements, which includes its assets and liabilities, revenue and overall business results A provision for Zakat and taxes will be made for Bahri and its affiliates in the Kingdom of Saudi Arabia in line are presented. In addition, a summary of Bahri’s subsidiaries’ financial results for 2017, are also be presented with the regulations of the General Authority of Zakat and Tax (GAZT). This provision will be reported in the along with the official government payments as well as Bahri’s dividends distribution policy. consolidated income statement. Additionally, a provision for the withholding tax on sea freight payments should be made for non-resident parties and reported in the consolidated income statement. Provisions for income tax payable by foreign affiliates will be calculated based on the relevant laws prevalent in the country/countries of establishment of those affiliates and will be expressed in the consolidated income statement. The company and its partly-owned affiliates will provide their Zakat declarations separately. Capital Structure & Financing The company has filed its Zakat declarations as well as those of its affiliates for every year until 2016. The company believes it has made sufficient provisions for Zakat and withholding tax as of December 31, 2017.

Bahri’s healthy cash flow position is the result of consistently strong financial performance and the high level of solvency the Company has managed to achieve and maintain. It is also reflective of positive cash flows achieved from operational activities and expected to be maintained in future. The Company’s future growth is dependent on its expansion strategies and Statement of regulatory payments as of December 31, 2017 – (SAR “000”) purchasing its fixed assets through its own capital sources and long-term loans. Fixed assets depreciate over a long period of time, typically 25 years. Bahri was able to diversify its funding sources, including short-term borrowings and long-term loans, by working with government entities and local and international commercial banks. These loans were in either Saudi Riyals or National Chemical Carriers Item Bahri Bahri Dry Bulk (BDB) US Dollars and meant we were able to acquire the required funding at competitive prices and reduce the risks associated with Ltd. Co. (Bahri Chemicals) interest rate increases and other funding costs.

Zakat 66,506 21,569 3.689

Withholding tax 5,767 554 968

Murabaha Financing and Long-Term Loans in 2017

Dividend Distribution Policy Murabaha financing & long-term loans during 2017 – (SAR “000”)

Additions Earnings per share from operating income and net profit for the period is calculated based on the weighted average number Start of Year Loan Loan Average Duration Paid During the Throughout the End of Year Loan Balance of shares outstanding during the period. Proposed dividends after the period end are treated as part of retained earnings and Balance (Years) Year Year not as liabilities unless the General Assembly approves it before the period end. Once approved by the General Assembly, the amount is recognized as a liability in the same period until paid. 9,746,588 10 1,586,640 1,001,146 10,332,082 Earnings per share is calculated based on the number of shares outstanding during the year ending December 31, 2017 and December 31, 2016 amounting to 393.75 million shares.

The Board of Directors decided in its meeting held on December 13, 2017 to recommend to the General Assembly of the Company the distribution of cash dividends of SAR590.63 million to the shareholders for the financial year ending December 31, 2017, which amounts to SAR 1.5 per share, and represents 15% of the share value.

Proposed dividends will be distributed at a date set by the Board of Directors, pending approval at a meeting of the Ordinary General Assembly.

In its meeting held on 16 January 2017, the General Assembly approved the distribution of cash dividends of SAR984.38 million to shareholders at SAR2.5 per share for the year ending on December 31, 2016. Dividends were distributed on January 31, 2017.

The General Assembly has approved in its meeting held on April 6, 2016 the distribution of cash dividends of SAR 984.38 to the shareholders, amounting to SAR 2.5 per share for the year ended December 31, 2015.The dividends were distributed on April 21, 2016. 110 Annual Report 2017 111

6 Bahri Finance Division

Bahri’s 2017 Financial Performance & Comparison with 2016 Graph 2 – Efficiency

Despite decreases in global transportation rates, the Company was able to achieve good financial results and continue Revenues and net income decreased in 2017 compared to 2016 due to decreases in global shipping rates that were affected delivering excellent net income and financial indicators in 2017 compared to other transport and shipping companies and with by global economic performance, decreases in the level of trade exchange and a global decline in imports and exports, consideration to the difficulties and challenges faced by the maritime transportation sector over the year. especially crude oil and its derivatives. Shipping rates were furthermore affected by supply and demand of crude oil and its The Company’s strategy has contributed to business diversification and fleet expansion in addition to long-term partnerships derivatives, number of available carriers and volume of shipping capacity added to maritime transport sector versus exclusion with strategic customers and enhanced operation efficiency through positive financial results. Furthermore, achieving a healthy of shipping capacity. financial position and high level of solvency will enable the company to continue pursuing its investment and strategic plans. 2017 was characterized by a surplus in maritime shipping capacity due to the introduction of a large number of ships with decreases in the number of excluded vessels. This in turn led to reductions in maritime transport rates. The increased cost of ship fuel placed even more pressure on operational income and profitability. Increases in the Company’s fleet and growth in the logistics sector, however, mitigated the effects of the decline in maritime Efficiency transportation prices, boosting Bahri’s performance. Furthermore, financial results nevertheless exceeded expectations 125,00 compared to other global transport and shipping companies. The Company currently owns 88 ships including 41 VLCCs, making Bahri the largest global operator of VLCCs. 100,00 Furthering the leadership role of the company and in line with its strategic plans for business and income diversification, Bahri has entered into a partnership with the International Marine Industries Company that will lead to the construction, development and operation of an international maritime yard at the King Salman International Complex for Maritime Industries and Services 75,00 in Ras Al-Khair. This company will build and maintain various kinds of ships including VLCCs. Bahri established BahriBolloré Logistics company in 2017 that will provide logistical services and also set up BahriBunge Dry Bulk Ltd. 50,00

25,00

Graph 1 – Consolidated Cashflow 0,00

25,00 2013 2014 2015 2016 2017

Cash Flows Operating Profit Margin Profit Margin Before Depreciation and Financing Return on Sales 4,000,000 and Zakat Costs Return on Assets Return on Total Equity Return on Equity Revenue Growth Rate

2,000,000

Efficiency

2017 2016 2015 2014 2013

(SAR “000”) Return on sales % 13.34 25.77 24.35 14.72 26.43

2,000,000 Profit margin before de- preciation and financing % 35.71 42.18 39.34 35.31 46.79 and Zakat costs

Operating Profit Margin % 20.00 28.19 28.41 18.69 30.30 4,000,000 2013 2014 2015 2016 2017 Return on Shareholders % 8.49 18.08 19.58 6.83 12.87 Net cash from financing activities Net cash from investing activities Net cash flows from operating activities Equity End of trading period cash and cash Net difference in cash and cash Return on Total Equity % 8.13 17.35 18.74 6.52 12.16 equivalents equivalents Return on Assets % 3.81 8.40 9.52 3.12 6.26 Cash Flows 2013 - 2017 Revenue Growth Rate % -10.94 -9.05 105.83 27.39 15.50 (SAR “000”) 2017 2016 2015 2014 2013

Net cash flows from 1,123,419 2,187,733 2,923,047 940,856 644,771 operating activities Net cash from investing - 1,616,669 - 2,008,035 - 1,629,098 - 3,474,732 - 769,881 activities Net cash from financing - 396,302 660,433 464,426 2,577,618 74,210 activities Net difference in cash - 889,552 840,131 829,523 43,742 - 50,900 and cash equivalents Cash and cash equivalents 1,190,441 2,079,993 1,142,831 313,308 269,566 at the end of the year 112 Annual Report 2017 113

6 Bahri Finance Division

Graph 3 – Solvency Graph 4 – Operating Revenue

Solvency 7,000

6,000 Sectoral Data 5,000 8,000,000

4,000 6,000,000 3,000

2,000 4,000,000

1,000 (SAR “000”)

0,000 2013 2014 2015 2016 2017 2,000,000

Solvency Ratio Net Debt/Profit Margin Before Depreciation Debt to Equity Ratio (D/E) 0 and Financing and Zakat Costs 2013 2014 2015 2016 2017

Logistics Unit Chemicals Unit Crude Oil Unit Solvency Total Operating Revenue Headquarters and Others Dry Bulk Unit 2017 2016 2015 2014 2013

Debt to Equity Ratio X 1.03 0.96 0.83 1.00 0.85 Operating Revenue (D/E) Net Debt/Profit Margin (SAR “000”) 2017 2016 2015 2014 2013 before depreciation and X 4.20 2.65 2.31 6.08 3.70 financing and Zakat Oil Transportation 3,726,244 4,797,713 5,764,525 2,152,259 1,506,756 costs Chemicals Unit 805,270 774,148 774,610 802,922 663,874 Solvency Ratio X 1.80 1.89 1.55 0.39 1.05 Logistics Unit 1,136,967 931,772 848,426 550,392 562,162 The above financial indicators reflect the strong and robust financial position of the Company where debt to equity ratio is low, giving the company the required capacity to obtain further strategic loans to finance investment opportunities Dry bulk Transportation 362,297 271,156 114,558 120,839 113,906 and implement its expansion plans. Headquarters and 107,018 98,748 N/A N/A N/A The positive financial ratios also emphasize the high liquidity and solvency enjoyed by the Company, enabling it to meet Others its short and long-term financial obligations and attract necessary financing to execute its strategic and expansion Total Operating Revenue 6,045,835 6,788,484 7,502,120 3,626,412 2,846,698 strategies. 114 Annual Report 2017 115

6 Bahri Finance Division

Graph 5 – Gross Operating Revenue Graph 6 – Consolidated Income Statement

The below graph shows decreases in revenue and operating income due to declining global transportation rates in 2017 driven by a struggling global economy in addition to the declining volume of crude oil imports and exports, further compounded by a surplus in shipping capacity. Operating income, furthermore, was negatively affected by increased bunker costs. An increase in Bahri’s fleet’s size and its growth in the logistics sector, however, mitigated the effects of Too close 2,500,000 declining transportation and shipping rates on the Company’s performance and financial results.

2,000,000 Too close 8,000,000 1,500,000

6,000,000

(SAR “000”) 1,000,000

500,000 4,000,000 (SAR “000”) 0 2013 2014 2015 2016 2017 2,000,000

Logistics Unit Chemicals Unit Crude Oil Unit Total Operating Income Headquarters and Others Dry Bulk Unit 0 2013 2014 2015 2016 2017

Total Operating Income 2013 – 2017 Net Period Income Operating Income Operating Revenues

(SAR “000”) 2017 2016 2015 2014 2013

2016 – 2017 Consolidated Income Statement Oil Transportation 776,792 1,387,926 1,746,737 448,540 307,734 (SAR “000”) 2017 2016 2015 2014 2013 Chemicals Unit 137,823 167,347 212,980 148,962 147,949

Logistics Unit 344,011 277,573 185,032 22,968 83,360 Operating Revenues 6,045,835 6,788,484 7,502,120 3,626,412 2,846,698

Dry Bulk Transportation 46,998 45,790 51,770 53,756 40,519 Operating Income 1,320,681 1,892,331 1,980,030 575,351 500,439 Headquarters and Net Period Income 806,511 1,749,726 1,817,583 533,840 752,262 15,057 13,695 N/A N/A N/A Others Total Operating 1,320,681 1,892,331 2,196,519 674,226 579,562 Income 116 Annual Report 2017 117

6 Bahri Finance Division

Graph 7 – Total Assets Bahri Five-Year Financial Results

The graph below shows the results of an increase in total assets in 2017 due to Bahri’s expansion and increases in Bahri Five Year Financial Results – 2017 - 2013 investments and marine fleet.

Item 2017 2016* 2015 2014 2013

Too close 25,000,000 Operating Revenue 6,045,835 6,788,484 7,502,120 3,626,412 2,846,698

Operating Expenses (4,911,018) (5,030,411) (5,485,511) (3,170,122) (2,438,244)

20,000,000 Total Operating Income 1,134,817 1,758,073 2,016,609 456,290 408,454 before Bunker Subsidy

15,000,000 Bunker Subsidy 185,864 134,258 179,910 217,936 171,108

Total Profit 1,320,681 1,892,331 2,196,519 674,226 579,562

(SAR “000”) 10,000,000 General and Administra- (171,274) (111,062) (216,489) (98,875) (79,123) tive Expenses Other Revenue (242,136) (75,070) 63,130 24,429 338,544 5,000,000 (Expenses), Net

Zakat & Tax Provisions (100,760) 43,527 (181,354) (37,436) (49,858) 0 2013 2014 2015 2016 2017 Non-Controlling Interest 6,198 31,855 (44,223) (28,504) (36,863) Equity

Total Assets Total Non-Current Assets Total Current Assets Net Period Income 806,511 1,749,726 1,817,583 533,840 752,262

Earnings Per Share 2.03 4.36 4.62 1.58 2.39 (EPS) 2016 – 2017 Total Assets

(SAR “000”) 2017 2016 2015 2014 2013 * 2016 figures of the financial report were modified in accordance with the international standards

Total Current Assets 3,629,374 3,812,768 2,840,531 1,838,528 1,453,027

Total Non-Current 17,553,209 17,024,487 16,256,120 15,305,883 10,569,686 Assets

Total Assets 21,182,583 20,837,255 19,096,651 17,144,411 12,022,713 118 Annual Report 2017 119

Chapter Seven 7

Statement of Assets & Liabilities

Statement of Assets & Liabilities 120 Shareholder Equity as of December 31, 2017 120 Operating segments for the year ending December 31, 2017 121 Distribution of the Group’s assets and liabilities according to 121 the operating segments as of December 31, 2017

Statement from Bahri’s Management 121 120 Annual Report 2017 121

Statement of 7 Assets & Liabilities

Statement of Assets & Liabilities Operating segments for the year ending December 31, 2017

Statement of Assets & Liabilities as of December 31, 2017 Operating segments for the year ending December, 31, 2017

Shared Oil Petrochemical Logistics Dry Bulk Adjustments Item 2017 2016* 2015 2014 2013 2017 Assets and Total Transportatio Transportation Transportation Transportation and deletions Liabilities*

Total Current Assets 3,629,374 3,812,768 2,840,531 1,838,528 1,453,027 Operating Revenue 3,726,244 805,270 1,136,967 362,297 107,018 (91,961) 6,045,835 Net Fixed Assets 14,746,536 13,661,896 12,798,271 12,980,017 8,512,152 Operating Expenses (3,114,438) (677,289) (803,992) (315,299) (91,961) 91,961 (4,911,018) Other Non-Current 2,806,673 3,362,591 3,457,849 2,325,866 2,057,534 Assets Fuel Subsidy - - - 164,986 9,842 11,036 185,864 Total Assets 21,182,583 20,837,255 19,096,651 17,144,411 12,022,713 Total Profit - 776,792 137,823 344,011 46,998 15,057 1,320,681 Total Current Liabilities 2,014,500 2,021,118 1,837,952 4,722,716 1,381,237 General and Administra- - Murabaha Financing for tive Expenses (5,706) (15,831) (2,311) (15,089) (132,337) (171,274) 9,180,585 8,663,558 7,505,847 4,152,888 4,376,589 Long-Term Loans Other Revenue (Expens- Other Non-Current es), Net (160,804) (85,440) (16,799) (19,120) 40,027 - (242,136) 69,467 65,482 53,774 83,538 77,464 Liabilities Income Before Zakat - Total Liabilities 11,264,552 10,750,158 9,397,573 8,959,142 5,835,290 and Tax 610,282 36,552 324,901 12,789 (77,253) 907,271 Ration to Total 67% 4% 36% 1% -9% 100% Paid-In Capital 3,937,500 3,937,500 3,937,500 3,937,500 3,150,000

Reserves and Retained 5,557,718 5,740,428 5,347,158 3,877,572 2,695,729 Earnings Non-Controlling Interest 422,813 409,169 414,420 370,197 341,694 Equity Distribution of the Group’s assets and liabilities according to Total Equity 9,918,031 10,087,097 9,699,078 8,185,269 6,187,423 the operating segments as of December 31,2017 Total Equity and Liabil- 21,182,583 20,837,255 19,096,651 17,144,411 12,022,713 ities Distribution of the Group’s assets and liabilities according to the operating segments as of 31st December, 2017 * 2016 figures have been updated in accordance with the International Financial Reporting Standards (IFRS). Shared Oil Petrochemical Logistics Dry Bulk Assets and Total Transportation Transportation Transportation Transportation Liabilities* Shareholder Equity as of December 31, 2017 Assets 12,423,200 3,548,304 2,327,355 688,573 2,195,151 21,182,583

Percentage of Total Shareholder’s Equity as of December 31, 2017 59% 17% 11% 3% 10% 100% Assets

Liabilities 6,849,952 2,116,263 947,529 359,611 991,197 11,264,552 Shareholders’ Increase/De- Year Change in Ratio Equity crease Percentage Total of 61% 19% 8% 3% 9% 100% Liabilities 2017 9,495,218 (182,710) 1.89%- Statement from Bahri’s Management 2016 9,677,928 393,270 4.24%

2015 9,284,658 1,469,586 18.80% Bahri’s Audited 2017 Financial Statements

2014 7,815,072 1,969,343 33.69% The audit committee examined the statements for 2017 during its Markets Authority and International 2013 5,845,729 434,815 8.04% initial annual financial statements of meeting held on February 28, 2018. Financial Reporting Standards (IFRS) the Company. The committee then The 2017 annual report was prepared approved by the Saudi Organization submitted its recommendations to the in accordance with accepted for Certified Public Accountants Board of Directors, which approved disclosure and transparency (SOCPA). the submitted annual financial standards, requirements of the Capital 122 Annual Report 2017 123

Chapter Eighth 8

Bahri Board of Directors

Table of Attendance - Board of Directors’ 2017 Meetings 124 Strategy and Investment Committee 124 Audit Committee 125 Remuneration and Compensation Committee 125 Bahri Board of Directors Classification (Session 2017 – 2019) 126 Bahri Board of Directors and Board Committees Compensation and Bonuses 2017 126 (excluding Audit Committee)

2017 Compensation and Bonuses allocated to Bahri’s Audit Committee Members 126 Bahri Board of Directors’ Share Ownership as of December 31, 2017 127

Bahri’s Board of Directors’ Membership in Other Corporations (2017 – 2019) 128 General Assemblies held during 2017 128 124 Annual Report 2017 125

8 Bahri Board of Directors

Table of Attendance - Board of Directors’ 2017 Meetings Audit Committee Tasks and responsibilities: Board of Directors Meetings Attendance Sheet 2017 • Examines and formulates recommendations about the initial annual consolidated financial statements of the Group in addition to examin- ing reports from the external auditor and monitoring related corrective measures that have been identified as a result. Meeting Meeting Meeting Meeting Meeting Meeting Meeting • Ensures the efficiency of Bahri’s internal controls, policies and procedures as well as the Company’s business, operations and internal Name Position (17/1) (17/2) (17/3) (17/4) (17/5) (17/6) (17/7) auditing reports. It also monitors the execution of corrective measures identified to ensure Bahri’s objectives are met and shareholders’ 17/1/26 17/2/28 17/5/22 17/6/12 17/10/26 17/12/13 17/12/14 interests are protected. • Reviews reports from regulatory bodies and audits the procedures implemented by executive management to process them. Abdulrahman M. Almofadhi Chairman √ √ × √ √ √ √ • Makes recommendations to the Board of Directors concerning the appointment of the external auditor, specifying their remuneration, assessing their performance, ensuring their independence and reviewing their scope of work and contracting requirements. Mohammed A. Al-Sarhan Vice Chairman √ √ √ √ √ √ √ • Monitors risk management work and activities.

Ghassan A. Al-Shibl Board Member √ √ √ √ × √ √ Summary: Saleh A. Al-Debasi Board Member √ √ × √ √ √ √ The Audit Committee reviewed control and internal auditing procedures as outlined in the procedures approved by the Internal Auditing Department. Abdulmalik A. Al-Hoqail Board Member √ √ √ √ √ √ √ It also discussed initial and final annual business results with the external auditor and executive management. The committee is satisfied with the effectiveness of Bahri’s internal auditing systems. and there are no significant issues that could cause Ahmed A. Al-Subaey Board Member √ √ × × × × × any weakness or otherwise threaten the internal auditing system. However, the committee is aware that no internal auditing system, irre- Ibrahim Q. Al-Buainain Board Member √ √ √ √ √ √ √ spective of how robust it is, can provide absolute affirmation of any possible issues within Bahri’s business and operations.

Khalid M. Al Arifi Board Member √ √ √ √ √ √ √ Audit Committee Meetings Attendance Sheet 2017 Khalifa A. Al-Mulhim Board Member × √ √ √ √ √ √ *Meeting Meeting Meeting Meeting Meeting Meeting Meeting Name Position (1/17) (17/2) (17/3) (17/4) (17/5) (17/6) (17/7) The Board of Directors has three board committee including the Strategy and Investment, Audit Committee and 17/1/15 17/4/24 17/4/30 17/5/3 17/7/24 17/10/23 17/12/4 Remuneration and Compensation committee, whose authorities and powers are specified by the Board. Abdulrahman A. Al-Hoqail Chairman - √ √ √ √ √ √ Strategy and Investment Committee Saleh A. Al-Debasi Board Member √ √ √ √ √ √ √ Khalid M. Al Arifi Board Member - √ √ √ × √ √

The Strategy and Investment Committee is responsible for developing the main pillars of Bahri’s strategy and Saad S. Al-Ruwaita Board Member √ √ √ × √ √ √ reviewing it periodically, considering issues referred by the Board, and ensuring optimal and effective utilization of the Company’s resources in order to enhance Bahri’s ability to maximize its return on investment. * A meeting within the previous session

Strategy and Investment Committee Meetings Attendance Sheet 2017 Remuneration and Compensation Committee: Meeting Name Position (17/1) This committee is responsible for nominating candidates to serve a term on the Board of Directors by conducting an annual review of 17/1/26 the needs and the skills required for board membership. In addition, the committee is responsible for reviewing the board’s structure, making recommendations concerning necessary changes, identifying strengths and weaknesses of the current board and finding ways to Abdulrahman M. Almofadhi Chairman √ address them. The committee is also responsible for developing clear policies concerning remuneration and compensation for the Board of Directors and senior executives based on their performance. The Company’s Ordinary General Assembly approved the selection rules Ahmed A. Al-Subaey Board Member √ of the Remuneration and Compensation Committee members and their membership terms and mandate. The board, however, set the remuneration of the committee members. Ghassan A. Al-Shibl Board Member √

Ibrahim Q. Al-Buainain Board Member √ Remuneration and Compensation Committee Meetings Attendance Sheet 2017

Khalifa A. Al-Mulhim Board Member × Meeting Meeting Meeting Meeting Meeting Meeting Meeting Name Position (17/1) (17/2) (17/3) (17/4) (17/5) (17/6) (17/7) 17/4/27 17/5/15 17/5/22 17/6/7 17/7/25 17/9/26 17/12/14

Mohammed A. Al-Sarhan Chairman √ √ √ √ √ √ √

Saleh A. Al-Debasi Board Member √ √ × √ × √ √

Ibrahim Q. Al-Buainain Board Member √ √ √ √ √ √ √

Khalifa A. Al-Mulhim Board Member √ √ √ √ × √ √ 126 Annual Report 2017 127

8 Bahri Board of Directors

Bahri Board of Directors Classification (Session 2017 – 2019) Bahri Board of Directors’ Share Ownership as of December 31, 2017 Bahri Board of Directors Classification (Session 2017 – 2019) Executive / Non-Executive / Independent

The Board of Directors declares that with exception to the shares owned by members of the board as stated in the table Name Position below, there are no private interests, share rights option, subscription rights, or ties to the company and its subsidiaries involving members of the Board, their spouses or children that could cause a conflict of interest. This includes company shares (direct or indirect) and provisions in employment contracts. Abdulrahman M. Almofadhi Non-executive

Mohammed A. Al-Sarhan Independent Board of Directors Meetings Attendance Sheet 2017 Saleh A. Al-Debasi Non-executive Equity at the Equity at the Change during Change per- Ghassan A. Al-Shibl Non-executive Name Position beginning of end of the the period centage % the period period Abdulmalik A. Al-Huqail Independent Chairman of the Abdulrahman M. Almofadhi - - - 0% Ahmed A. Al-Subaey Non-executive Board

Ibrahim Q. Al-Buainain Non-executive Mohammed A. Al-Sarhan Vice Chairman 369,053 369,053 - 0%

Khalid M. Al Arifi Non-executive Saleh A. Al-Debasi Board Member 5,200 10,500 5,300 102%

Khalifa A. Al-Mulhim Independent Ghassan A. Al-Shibl Board Member 25,000 10,500 (14,500) (58%)

Abdulmalik A. Al-Huqail Board Member 120,000 120,000 - 0%

Ahmed A. Al-Subaey Board Member - - - 0%

Ibrahim Q. Al-Buainain Board Member - - - 0% Bahri Board of Directors and Board Committees Compensation Khalid M. Al Arifi Board Member - - - 0% and Bonuses 2017 (excluding Audit Committee) Khalifa A. Al-Mulhim Board Member 2,507,956 2,508,956 1,000 0%

Compensation and bonuses allocated to Bahri’s Board and Board Committee members (excluding Audit Commit- tee) amounted to SAR 3,945,000 in 2017.

2017 Compensation and Bonuses Allocated to Bahri’s Audit Committee members:

Compensation and bonuses allocated to Audit Committee members amounted to SAR 470,000 in 2017. 128 Annual Report 2017 129

8 Bahri Board of Directors

Bahri’s Board of Directors’ Membership in Other Corporations (2017 – 2019)

Bahri’s Members of the Board’s Membership in Other Corporations (2017 – 2019)

Name Position

- The National Commercial Bank Abdulrahman M. Almofadhi - The Saudi Real Estate Company

Mohammed A. Al-Sarhan - None

Saleh A. Al-Debasi - None

Ghassan A. Al-Shibl - The Saudi Research and Marketing Group

Abdulmalik A. Al-Huqail - The Saudi Electricity Company

Ahmed A. Al-Subaey - None

Ibrahim Q. Al-Buainain - None

Khalid M. Al Arifi - None

- The Advanced Petrochemical Company Khalifa A. Al-Mulhim - Bank Al-Jazirah

General Assemblies held during 2017:

1. The Ordinary General Assembly No.41(held on January 16, 2017), was attended by the following board members:

• Abdulrahman M. Almofadhi • Mohammed A. Al-Sarhan • Essam H. Al-Mubarak • Abdullah A. Al-Ajaji • Ahmed A. Al-Subaey • Ibrahim Q. Al-Buainain

2. The Extraordinary General Assembly No.11 ( held on April 12, 2017 ) was attended by the following board members:

• Abdulrahman M. Almofadhi • Mohammed A. Al-Sarhan • Ghassan A. Al-Shibl • Khalid M. Al Arifi 130 Annual Report 2017 131

Chapter Nine 9

Executive Management

Executive Management 132

A Final Note 133 132 Annual Report 2017 133

9 Executive Management Executive Management

With the mandate of improving the technical, communications and risk business in line with shareholder Company’s competitiveness and management activities. Furthermore, it interests. There are no investments executing its strategic operational manages all activities related to Bahri’s or reserve funds set aside for the plan, Bahri’s Executive Management business and assists in monitoring and benefit of Company’s employees is led by the CEO and assisted by his executing important ad-hoc work and except what is due to them based on deputies, business unit presidents tasks by forming executive committees official company regulations.Bahri’s and subsidiaries. They manage the as needed. five senior executives, including Company’s business in order to the Chief Financial Officer (CFO), achieve the goals and visions set The Executive Management is hold no interest, stock rights option, by shareholders and the Board of committed to responsibly using the subscription rights or debt holdings in Directors. powers delegated by the Board any of Bahri’s subsidiary companies and adhering to approved policies. that could cause a conflict of interest. The Executive Management is It executes Bahri’s operational Furthermore, they do not own source responsible for the Company’s and strategic plans with the aim of shares based on information from operational, financial, administrative, developing and growing the Company’s Tadawul as of December 31, 2017, except as outlined in the table below. Statement of Bahri’s Senior Executive’s Equity during 2017

Statement of Bahri’s Senior Executive’s Equity during 2017

Name Position A Final Note

Acting CEO Ali Al-Harbi In conclusion, we, Bahri’s Board of Directors and staff members, must extend our thanks and apprecia- Chief Financial Officer tion to Custodian of the Two Holy Mosques King Salman bin Abdulaziz, Crown Prince Mohammed bin Ahmed Al-Ghaith Acting President, Bahri Logistics Salman bin Abdulaziz and their government. The Board of Directors is equally grateful to Bahri’s share- holders and customers; we express our deep appreciation for their invaluable trust that empowers the Anwar Siddiqui President, Bahri Data Board to deliver further value and lead the company to future successes. The Board also thanks the ex- ecutive management and all Bahri employees for their efforts in developing and enhancing performance Per Pedersen President, Bahri Ship Management and for their hard work in achieving Bahri’s objectives. Majid H. Al-Shenaiber Senior Vice President, Information Technology

Their total salaries, bonuses and equivalents amounted to SAR 8,718,519 in 2017 134 Annual Report 2017 135

Chapter Ten 10

Fleet Information

Fleet Information 136 136136 Annual Report 2017 137137

11 Fleet Information

Bahri Oil Tanker Fleet in 2017

Length DWT No. Speed Length DWT No. Speed No. Vessel name Year built Type Beam (m) DWT No. Vessel name Year built Type Beam (m) DWT (m) of tanks (knot) (m) of tanks (knot)

1 Ramlah 1996 Double hull 340 56 300,361 17 15 42 Khafji 2003 Double hull 248 43 97,000 14 14 2 Ghawar 1996 Double hull 340 56 300,361 17 15 43 Bahri Iris 2005 Double hull 200 32 49,000 14 14 3 Watban 1996 Double hull 340 56 300,361 17 15 44 Bahri Jasmine 2005 Double hull 200 32 49,000 14 14 4 Hawtah 1996 Double hull 340 56 300,361 17 15 45 Bahri Rose 2006 Double hull 200 32 49,000 14 14 5 Safaniyah 1997 Double hull 340 56 300,361 17 15 46 Bahri Tulip 2006 Double hull 200 32 49,000 14 14

6 Harad 2001 Double hull 333 58 303,116 17 17.1 Total DWT 13,082,507 7 Marjan 2002 Double hull 333 58 302,977 17 17.1 8 Safwa 2002 Double hull 333 58 303,139 17 17.1 9 Abqaiq 2002 Double hull 333 58 302,986 17 17.1 10 Tinat 2002 Double hull 333 60 316,502 17 15 11 Hilwah 2002 Double hull 333 60 316,808 17 15 12 Lulu 2003 Double hull 333 60 316,507 17 15 13 Shiblah 2003 Double hull 333 60 316,476 17 15 14 Wafrah 2007 Double hull 333 60 317,788 17 16.7 15 Layla 2007 Double hull 333 60 317,821 17 16.7 16 Jana 2008 Double hull 333 60 317,693 17 16.7 17 Habari 2008 Double hull 333 60 317,664 17 16.7 18 Shaybah 2008 Double hull 333 60 319,429 17 16 19 Manifa 2008 Double hull 333 60 319,428 17 16 20 Jaham 2008 Double hull 333 60 319,430 17 16 21 Jaladi 2008 Double hull 333 60 319,464 17 16 22 Khuzama 2008 Double hull 333 60 319,423 17 16 23 Karan 2009 Double hull 333 60 319,411 17 16 24 Kahla 2009 Double hull 333 60 317,521 17 16.7 25 Dorra 2009 Double hull 333 60 317,458 17 16.7 26 Ghazal 2009 Double hull 333 60 317,388 17 16.7 27 Sahba 2009 Double hull 333 60 317,563 17 16.7 28 Farhah 2010 Double hull 333 60 319,302 17 16 29 Ghinah 2010 Double hull 333 60 319,141 17 16 30 Niban 2010 Double hull 333 60 319,286 17 16 31 Nisalah 2010 Double hull 333 60 319,288 17 16 32 Kidan 2010 Double hull 333 60 321,234 17 15 33 Wedyan 2010 Double hull 333 60 321,234 17 15 34 Arsan 2010 Double hull 333 60 314,000 17 15 35 Dilam 2010 Double hull 333 60 314,000 17 15 36 Awtad 2011 Double hull 333 60 309,988 17 15 37 Amjad 2017 Double hull 333 60 298,886 17 15 38 Maharah 2017 Double hull 333 60 298,968 17 15 39 Aslaf 2017 Double hull 333 60 298,778 17 15 40 Rimthan 2017 Double hull 333 60 298,855 17 15 41 Shaden 2017 Double hull 333 60 298,750 17 15 138 Annual Report 2017 139139

11 Fleet Information

Bahri Chemical Fleet in 2017 Bahri Dry Bulk Vessels in 2017

Length Beam No. of Speed Length Speed No. Carriers Year built DWT No. Ship Year built DWT Draft (m) Beam (m) Horsepower (m) (m) tanks (knot) (m) (knots)

1 *NCC Makkah 1995 183.10 32.2 37.500 52 16 1 Bahri Arasco 2013 81,855 14.45 32.26 228.99 9,840 14.5 2 *NCC Riyadh 1995 183.10 32.2 37.500 52 16 2 Bahri Grain 2014 81,855 14.45 32.26 228.99 9,840 14.5 3 *NCC Jubail 1996 183.10 32.2 37.500 52 16 3 Bahri Bulk 2014 81,855 14.45 32.26 228.99 9,840 14.5 4 NCC Najed 2005 183.02 32.2 46.200 22 15 4 Bahri Wafi 2014 81,855 14.45 32.26 228.99 9,840 14.5 5 NCC Al Hijaz 2005 183.02 32.2 46.200 22 15 5 Bahri Trader 2014 81,855 14.45 32.26 228.99 9,840 14.5 6 NCC Tihama 2006 183.02 32.2 46.200 22 15 7 NCC Abha 2006 183.02 32.2 46.200 22 15 8 NCC Tabuk 2006 183.02 32.2 46.200 22 15 9 NCC Qassim 2006 183.02 32.2 46.200 22 15 Bahri Logistics Vessels in 2017 10 NCC Rabigh 2007 183.02 32.2 46.200 22 15 11 NCC Sudair 2007 183.02 32.2 46.200 22 15 Capacity 12 NCC Dammam 2008 183.02 32.2 46.200 22 15 Weight Beam Length (TEU Speed No. Ship Year built Draft (m) Horsepower 13 NCC Hail 2008 183.02 32.2 46.200 22 15 (DWT) (m) (m) con¬tainer) (knots) 14 NCC Noor 2011 183.00 32.2 45.000 22 15 1 Bahri Abha 2013 26.00 9.5 32.30 225 2.50 8.907 17 15 NCC Huda 2011 183.00 32.2 45.000 22 15 2 Bahri Hofuf 2013 26.00 9.5 32.30 225 2.50 8.907 17 16 NCC Amal 2011 183.00 32.2 45.000 22 15 3 Bahri Tabuk 2013 26.00 9.5 32.30 225 2.50 8.907 17 17 NCC Safa 2011 183.00 32.2 45.000 22 15 18 NCC Danah 2011 183.00 32.2 45.000 22 15 4 Bahri Jazan 2013 26.00 9.5 32.30 225 2.50 8.907 17 19 NCC Nasma 2011 183.00 32.2 45.000 22 15 5 Bahri Jeddah 2014 26.00 9.5 32.30 225 2.50 8.907 17 20 NCC Shams 2012 183.00 32.2 45.000 22 15 6 Bahri Yanbu 2014 26.00 9.5 32.30 225 2.50 8.907 17 21 NCC Najem 2012 183.00 32.2 45.000 22 15 22 NCC Reem 2012 183.00 32.2 45.000 22 15 23 NCC Sama 2012 183.00 32.2 45.000 22 15 24 NCC Fajr 2013 228.00 36.8 75.000 30 14 25 NCC Qamar 2009 183.00 32.0 46.195 22 15 26 NCC Maha 2009 183.00 32.0 46.265 22 15 27 NCC Bader 2014 183.12 32.2 50,000 14 15 28 NCC Ghazal 2014 183.12 32.2 50,000 14 15 29 NCC Jood 2014 183.12 32.2 50,000 14 15 30 NCC Masa 2014 183.12 32.2 50,000 14 15 31 NCC Wafa 2014 183.12 32.2 50,000 14 15

Total capacity (DWT) 1,441,890 140 Annual Report 2017 141

Chapter Eleven 11

Consolidated Financial Statements

and Independent Auditor’s Report For the year ending December 31, 2017

Independent Auditor’s Report 142 Consolidated Statement of Financial Position 148 Consolidated Statement of Income 149 Consolidated Statement of Comprehensive Income 150 Consolidated Statement of Cash Flows 151

Consolidated Statement of Changes in Equity 152 THE NATIONAL SHIPPING COMPANY OF SAUDI ARABIA Notes to the Consolidated Financial Statements 153 (A Saudi Joint Stock Company) 142 Annual Report 2017 143

How our audit addressed the key audit Key audit matter matter 144 Annual Report 2017 145

Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter 146 Annual Report 2017 147 148 Annual Report 2017 149 150 Annual Report 2017 151

Consolidated Financial 11 Statements

Consolidated Statement of Financial Position Consolidated Statement of Income As at December 31, 2017 (In Thousands Saudi Riyals) For the year ending December 31, 2017 (In Thousands Saudi Riyals)

1 January 2016 2016 Notes 2017 2016 Notes 2017 (Note 32) (Note 32) (Note 32) ASSETS NON-CURRENT ASSETS Revenues 6,045,835 6,788,484 Property and equipment 6 14,746,536 13,661,896 12,642,669 Operating costs (4,911,018) (5,030,411) Ships under construction 7 959,390 1,235,565 1,099,901 Gross profit before bunker subsidy 1,134,817 1,758,073 Intangible assets 8 719,593 772,064 849,464 Bunker subsidy 185,864 134,258 Investment in an associates 9 995,161 1,123,848 1,027,941 Gross profit 1,320,681 1,892,331 Receivables from finance lease 10 121,735 207,498 251,730 General and administrative expenses 22 (171,274) (111,062) Other investments 11 10,794 23,616 23,576 Other expenses, net 23 (24,198) (1,508) TOTAL NON-CURRENT ASSETS 17,553,209 17,024,487 15,895,281 Total operating profit 1,125,209 1,779,761 CURRENT ASSETS Finance income 8,344 18,955 Receivables from finance lease - current portion 10 56,860 44,232 36,109 Finance costs 24 (308,435) (239,561) Inventories 12 290,759 240,675 203,610 Share in results of an associate 9 82,153 147,044 Trade receivables, net 13 1,474,988 1,071,729 989,879 Income before zakat and taxes 907,271 1,706,199 Prepayments and other current assets 14 364,951 376,139 337,423 Zakat and taxes, net 21 (100,760) 43,527 Investment held for sale 9 251,375 - - Net income for the year 806,511 1,749,726 Murabaha and short-term deposits 15.1 692,921 1,908,262 1,066,597 Net income for the year attributable to: Cash and cash equivalents 15 497,520 171,731 173,265 Equity holders of the parent company 800,313 1,717,871 TOTAL CURRENT ASSETS 3,629,374 3,812,768 2,806,883 Non-controlling interests 31 6,198 31,855 TOTAL ASSETS 21,182,583 20,837,255 18,702,164 806,511 1,749,726 EQUITY AND LIABILITIES Earnings per share (Saudi Riyal): EQUITY 16 3,937,500 3,937,500 3,937,500 Basic 25 2.03 4.36 Share capital 17 2,453,835 2,373,804 2,197,890 Diluted 25 2.03 4.36 Statutory reserve (5,342) (6,694) (11,061) Other reserves 3,109,225 3,373,318 2,817,536 Retained earnings 9,495,218 9,677,928 8,941,865 The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. Equity attributable to equity holders of the parent 31 company Non-controlling interests 422,813 409,169 377,314 Total equity 9,918,031 10,087,097 9,319,179 LIABILITIES NON-CURRENT LIABILITIES Sukuk and long term loans 18 9,180,585 8,663,558 7,475,216 Employees’ benefits 19 69,467 65,482 65,349 TOTAL NON-CURRENT LIABILITIES 9,250,052 8,729,040 7,540,565 CURRENT LIABILITIES Long term loans - current portion 18 1,075,289 1,001,146 547,016 Trade payables and other current liabilities 20 694,947 800,419 998,593 Provision for zakat and taxes 21 244,264 219,553 296,811 TOTAL CURRENT LIABILITIES 2,014,500 2,021,118 1,842,420 TOTAL LIABILITIES 11,264,552 10,750,158 9,382,985 TOTAL EQUITY AND LIABILITIES 21,182,583 20,837,255 18,702,164

The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. 152 Annual Report 2017 153

Consolidated Financial Consolidated Statement of Cash Flows 11 Statements For the year ending December 31, 2017 (In Thousands Saudi Riyals)

Note 2017 2016

OPERATING ACTIVITIES Consolidated Statement of Comprehensive Income For the year ending December 31, 2017 (In Thousands Saudi Riyals) Net income for the year 806,511 1,749,726 Adjustments to reconcile net income for the year: Depreciation of property and equipment 6 801,567 914,922 2016 Note 2017 Amortization of intangible assets 8 52,471 52,732 (Note 32) Provision (reversal of provision) for doubtful debts, net 13 1,638 (15,452) Finance income (8,344) (18,955)

Net income for the year 806,511 1,749,726 Finance costs 24 308,435 239,561 Items that will not be reclassified to consolidated Share in results of an associate 9 (82,153) (147,044) statement of income (Gain) loss on disposal of property and equipment 23 (5,286) 32,942 Re-measurement gain on defined benefit plans 19 1,352 4,367 Provision (reversal of provision) for zakat and taxes 21 100,760 (43,527) Total comprehensive income for the year 807,863 1,754,093 1,975,599 2,764,905 Total comprehensive income attributable to: Changes in operating assets and liabilities: Equity holders of the parent company 801,665 1,722,238 Inventories (50,084) (37,065) Non-controlling interests 31 6,198 31,855 Trade receivables (404,897) (66,398) Prepayments and other current assets 16,864 (38,716) Total comprehensive income for the year 807,863 1,754,093 Receivables from finance lease 73,135 36,109 The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. Trade and other payables (152,105) (341,307) Employees’ benefits 10,468 10,924 Cash generated from operations 1,468,980 2,328,452 Finance costs paid (262,581) (98,764) Zakat and taxes paid 21 (76,049) (33,731) Board members’ compensation paid (1,800) (1,800) Employees’ benefits paid (5,131) (6,424) Net cash flows from operating activities 1,123,419 2,187,733 INVESTING ACTIVITIES Acquisition of property and equipment 6,7 (827,373) (1,798,166) Proceeds from disposal of property and equipment 6 7,582 47,913 Ships under construction 7 (784,955) (327,834) Investment in an associates 9 (74,625) - Dividends received from an associate 9-1 34,090 51,137 Proceeds from finance income 8,344 18,955 Other investments 12,822 (40) Non-controlling interests 7,446 - Net cash flows used in investing activities (1,616,669) (2,008,035) FINANCING ACTIVITIES Proceeds from long term loans 18 1,586,640 2,146,128 Proceeds from short term loans 18 - 781,688 Repayment of long term loans 18 (1,001,146) (503,656) Repayment of short term loans 18 - (781,688) Dividends paid 30 (981,796) (982,039) Net cash flows (used in) from financing activities (396,302) 660,433 (Decrease) increase in cash and cash equivalents (889,552) 840,131 Cash and cash equivalents at 1 January 15 2,079,993 1,239,862 Cash and cash equivalents at 31 December 15 1,190,441 2,079,993 Major non-cash transactions: Ships under construction transferred to property and equipment 7 1,061,130 192,170

The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. 154 Annual Report 2017 155

Consolidated Financial Notes to the Consolidated Financial Statements 11 Statements December 31, 2017 (In Thousands Saudi Riyal ( 1. THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION

The National Shipping Company of Saudi Arabia (the “Company”, “Bahri” or “Parent”), A Saudi Joint Stock Consolidated Statement of Changes in Equity Company was established under the Royal Decree No. M/5 dated 12 Safar 1398H (corresponding to 21 January )For the year ending December 31, 2017 (In Thousands Saudi Riyal 1978), and registered under Commercial Registration No. 1010026026 dated 1 Dhul Hijjah 1399H, (corresponding to 22 October 1979) issued in Riyadh. The Company’s head office is located in Olya district, Olya Towers (Tower B), Floors (12-15), P.O Box 5101, Riyadh, 1142, Kingdom of Saudi Arabia Attributable to equity holders of the parent company

Non- The Company and its subsidiaries listed below (the “Group”) are primarily engaged in purchasing, sale and Share Statutory Other Retained Total Total controlling operating of vessels for the transportation of cargo and passengers, agencies for maritime shipping companies, capital reserve reserves earnings equity interests cargo clearance and coordination on vessels’ board transport and storage, and all of the marine transport activities. The Group is also engaged in the ownership of lands, properties inside or outside the Kingdom, ownership of shares in other existing companies or merges with them and participates with others in establishing companies with similar Balance as at 1 activities or complementary activities. The Group performs its operations through four segments which are crude oil January 2016 3,937,500 2,197,890 (11,061) 2,817,536 8,941,865 377,314 9,319,179 transportation, chemicals transportation, logistics services and dry bulk transportation. Net income for the The Company’s capital consists of 393,750 thousand shares as of December 31, 2017 and December 31, 2016. year - - - 1,717,871 1.717.871 31,855 1,749,726 The par value per share is SAR 10. Other comprehen- The subsidiary companies incorporated into these consolidated financial statements of the group include: sive income - - 4,367 - 4,367 - 4,367 Total comprehen- sive income for the Date of Ownership % Principal Subsidiary Location year - - 4,367 1,717,871 1,722,238 31,855 1,754,093 incorporation 2017 2016 Activity Transferred to stat- Company’s ship NSCSA Inc. - USA 1991 100 100 USA utory reserve - 175,914 - (175,914) - - - ٪ ٪ agent Dividends (note 30) - - - (984,375) (984,375) - (984,375) Ships technical Mideast Ship Management Limited (JLT) 2010 100٪ 100٪ UAE Board members’ management compensation - - - (1,800) (1,800) - (1,800) Petrochemicals National Chemical Carriers Limited Co. (NCC) 1990 80٪ 80٪ KSA Balance as at 31 transportation December 2016 3,937,500 2,373,804 (6,694) 3,373,318 9,677,928 409,169 10,087,097 Bahri Dry Bulk LLC and its Dry bulk 2010 60 60 KSA Subsidiary* (BDB) ٪ ٪ transportation Balance as at 1 BahriBolloré Logistics** 2017 60٪ - Logistic Services KSA January 2017 3,937,500 2,373,804 (6,694) 3,373,318 9,677,928 409,169 10,087,097

Net income for the *During 2017, Bahri Dry Bulk LLC (a subsidiary) and Koninklijke Bunge B.V. (Netherlands Company) has established year 800,313 800,313 6,198 806,511 - - - Bahri Bunge Dry Bulk Ltd in the UAE, with capital of SAR 18.7 million. The Company engages in chartering vessels Other comprehen- for the purpose of importing and exporting dry bulk commodities between the Middle East and the world. Bahri Dry sive income - - 1,352 - 1,352 - 1,352 Bulk Company owns 60% of share capital. Total comprehen- sive income for the **During 2017, BahriBollore Logistics company was established in Saudi Arabia with a capital of SAR 15 million. year - - 1,352 800,313 801,665 6,198 807,863 The company’s responsibilities are to provide comprehensive logistics services including freight brokerage, Transferred to stat- transportation and all services associated with transportation. Bahri owns 60% of share capital. The company paid its capital share during 2018. utory reserve - 80,031 - (80,031) - - - Non-controlling The following are the associated companies that are not consolidated into these consolidated financial statements interest share - - - - - 7,446 7,446 of the Group (note 9): Dividends (note 30) - - - (984,375) (984,375) - (984,375) Balance as at 31 Date of Ownership % Principal December 2017 3,937,500 2,453,835 (5,342) 3,109,225 9,495,218 422,813 9,918,031 Associate Location incorporation 2017 2016 Activity Liquefied The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. Petredec Limited 1980 30.30٪ 30.30٪ petroleum gas Bermuda transportation Maritime International Maritime Industries Company 2017 19.9 - KSA industries ٪

Group's Fleet: As at December 31, 2017, the Group owns eighty-eight vessels (December 31, 2016: eighty-three vessels, January 1, 2016: seventy-five vessels) operating in various sectors as the following:

Crude oil transportation sector: Consists of forty-six (December 31, 2016: forty-one vessels, January 1, 2016: thirty-eight vessels)Very Large Crude Carriers (VLCCs), out of which forty are operating in the spot market, while five product tankers are chartered to Saudi Arabian Oil Company (Saudi Aramco). 156 Annual Report 2017 157

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

3. BASIS OF CONSOLIDATION OF FINANCIAL STATEMENTS

The Company and its subsidiaries are collectively referred to as the “Group”. Subsidiaries are entities controlled by Notes to the Consolidated Financial Statements (continued) the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement December 31, 2017 (In Thousands Saudi Riyal) with the entity and has the ability to affect those returns through its power over the entity. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has 1.THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION (continued) equal or less than a majority of the voting or similar rights of an investee, the Group considers all other relevant facts and circumstances in assessing whether it has power over an investee, including any contractual and other such Chemicals transportation sector: This sector is fully operated by National Chemical Carriers Limited Company arrangements which may affect the activities which impact investees’ return. The determination about whether the ( a subsidiary), and it owns thirty-one (December 31, 2016: thirty-one vessels, January 1, 2016: twenty-six vessels) Group has power thus depends on such relevant activities, the way decisions about the relevant activities are made specialized tankers distributed as follows: and the rights the Group has, in relation to the investees. Based on the above considerations, the management • Three tankers are leased in the form of iron under finance lease signed on January 30, 2009, with Odfjell and the Group believe: there is a pattern of past and existing practice of the Group’s involvement in the relevant SE ( a trading partner) (note 10). activities of these investees resulting in an impact on their returns and also indicating a more than passive interest of • Sixteen tankers that are operates in the spot market. the Group in such investees; and the Group has created an environment in which the set-up and function of these • Six tankers are chartered to the International Shipping and Transportation Co. Ltd., a subsidiary of Saudi Basic investees and their interrelationship with the Group leads towards a judgement of ‘control’. Industries Corporation (“SABIC”), and five tankers are chartered to Saudi Aramco. • One tanker operates in a pool with Odfjell SE (note 27). Subsidiaries are consolidated from the date on which control commences until the date on which control ceases. The Group accounts for the business combination using the acquisition method when control is transferred to Logistics sector: the Group. The consideration transferred in the cost of acquisition is generally measured at fair value, as are the Consists of six RoCon vessels ( December 31, 2016: six vessels, January 1, 2016: six vessels) operating on identified net assets acquired. The excess of the cost of acquisition and fair value of Non-Controlling Interest (“NCI”) commercial lines between North America and Europe, and the Middle East and the Indian Subcontinent. over the fair value of the identifiable net assets acquired is recorded as goodwill in the consolidated statement of financial position. NCI is are measured at is their proportionate share of the acquiree’s identifiable net assets at the Dry bulk transportation sector: date of acquisition. This sector is fully operated by Bahri Dry Bulk Company (a subsidiary), and it owns five vessels ( December If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, NCI 31, 2016: five vessels, January 1, 2016: five vessels) specialized in transporting dry bulk cargo, all of which are and other components of equity, while any resultant gain or loss is recognized in the consolidated statement of chartered to the Arabian Agricultural Services Company (“ARASCO”). income. Any investment retained is recognized at fair value.

2. BASIS OF PREPARATION The portion of profit or loss, net assets and other comprehensive income not controlled by the Group are presented separately in the consolidated statement of income and within equity in the consolidated statement of financial 2.1. Statement of compliance position. Intra-group balances and transactions, and any unrealized income and expenses arising from intra- group transactions, are eliminated. Accounting policies of subsidiaries are aligned, where necessary, to ensure The consolidated financial statements of the Group have been prepared in accordance with International Financial consistency with the policies adopted by the Group. The Company and its subsidiaries have the same reporting Reporting Standards (“IFRS”) that are endorsed in the Kingdom of Saudi Arabia (“KSA”) and other standards periods. and pronouncements that are issued by Saudi Organization for Certified Public Accountants (“SOCPA”) (referred to as “IFRS as endorsed in KSA”). These are also the Group’s first consolidated financial statements prepared 4. SIGNIFICANT ACCOUNTING POLICIES in accordance with IFRS as endorsed in KSA, and accordingly, “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) as endorsed in KSA has been applied in the current year. Refer to note 32 for 4.1. New standards, amendments to standards and interpretation, and standards information on the first time adoption of IFRS as endorsed in KSA by the Group. issued and not yet effective

2.2. Preparation of financial statements 4.1.1. New standards, amendment to standards and interpretations

i ) Historical cost convention The Group has adopted, as appropriate, the following new and amended IASB Standards, effective January 1,2017.

The consolidated financial statements have been prepared on a historical cost basis, except for certain financial a ) Disclosure initiative (amendments to IAS 7) assets and liabilities below: • Derivative financial instruments are measured at fair value. The amendments require disclosures of information that enable users of financial statements to evaluate changes • The defined benefit plans are recognized at the present value of future obligations using the Projected Unit in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. Credit Method. The Group’s financing activities, as disclosed in the consolidated statement of cash flows, represents only cash flow changes. ii ) Functional and presentation currency b ) Annual improvements to IFRS (2014 – 2016) cycle amendments to IFRS 12 disclosure of These consolidated financial statements are presented in Saudi Riyal (SR), which is the Group’s functional and presentation currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. interests in other entities

The amendments clarify that disclosure requirements for interests in other entities also apply to interests that are classified as held for sale or distribution. There is no impact of this amendment on the Group’s consolidated statements. 158 Annual Report 2017 159

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.1. New standards, amendments and standards issued and not yet effective December 31, 2017 (In Thousands Saudi Riyal) (continued)

4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4.1.2. Standards issued but not yet effective (continued)

4.1. New standards, amendments and standards issued and not yet effective (continued) b ) IFRS 15 Revenue from contracts with customers

4.1.2. Standards issued but not yet effective IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Following are the new standards and amendments to standards the are effective for annual periods beginning after Contracts and IFRIC 13 Customer Loyalty Programs. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 and earlier application is permitted; The Group has not early adopted these standards in preparing January 1, 2018. The Group will implement the standard using a retrospective approach option. The Group has these consolidated financial statements. performed a detailed analysis, subject to changes arising from additional information available to the Group during the year 2018. In general, the Group does not expect a significant impact on the consolidated statement of financial a ) IFRS 9 Financial instruments positons nor the consolidated statement of changes in equity from adopting IFRS 15.

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial c ) IFRS 16 Leases Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge IFRS 16 introduces a single, on-statement of financial position lease accounting model for lessees. A lessee accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing permitted. Except for hedge accounting, retrospective application is required but providing comparative information its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance exceptions. or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement The Group plans to adopt the new standard on the required effective date and the standard will not be adopted for contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions comparative figures. The Group performed a detailed assessment of IFRS 9, which is subject to changes arising Involving the Legal Form of a Lease. The standard is effective for periods beginning on or after 1 January 2019. from additional information that will be available to the Group on the date of application. The Group does not expect Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the significant effect on the consolidated financial position nor the consolidated statement of changes in equity from the date of initial application of IFRS 16. adoption of the standard. Determining whether an arrangement contains a lease Classification and measurement On transition to IFRS 16, the Group can choose whether to: The Group does not expect a significant impact on its consolidated statement of financial position or consolidated • Apply the IFRS 16 definition of a lease to all its contracts; or statement of changes in equity on applying the classification and measurement requirements of IFRS 9. It expects • Apply a practical expedient and not reassess whether a contract is, or contains, a lease. to continue measuring all financial assets currently held at fair value. Transition Trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Thus, the Group expects that the trade receivables will continue to be As a lessee, the Group can either apply the standard using a: measured at amortized cost under IFRS 9 and will be classified as financial assets measured at amortization cost. • Retrospective approach; or • Modified retrospective approach with optional practical expedients. Impairment The lessee applies the same election to all of its leases contracts. The Group plans to adopt IFRS 16 on January The new impairment model requires the recognition of impairment provisions based on expected credit losses 1,2019. The Group has not yet determined which transition approach to apply. As a lessor, the Group is not (ECL) rather than only incurred credit losses as is the case under “IAS 39.” It applies to financial assets classified required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub- at amortized cost, debt instruments measured at fair value through other comprehensive income, contract assets lease. under “IFRS 15 – Revenue from Contracts with Customers”, lease receivables, loan commitments and certain financial guarantee contracts. It is not expected to have an impact on the consolidated statement of financial statement and consolidated statement of changes in equity.

Hedge accounting

The new hedge accounting rules will align instruments more closely with the Group’s risk management practices. As a general rule, more hedge relations might be eligible for hedge accounting, as the standard introduces a more principles-based approach. The Group will reassess the effect of adopting commissions rate options as per IFRS 9.

Disclosure

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of adoption of the new standard. 160 Annual Report 2017 161

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4.2 Significant accounting judgement, estimates, and assumptions(continued)

Notes to the Consolidated Financial Statements (continued) Employees’ benefits December 31, 2017 (In Thousands Saudi Riyal) Provision for employees’ end-of-service benefits is made in accordance with the projected unit credit method as per IAS 19 taking into consideration the labor law of the respective country in which the subsidiary operates. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) The provision is recognized based on the present value of the defined benefit obligations. The present value of the defined benefit obligations is calculated using assumptions on the average annual rate of increase in salaries, 4.1 New standards, amendments and standards issued and not yet effective (continued) average period of employment and an appropriate discount rate. The assumptions used are calculated on a consistent basis for each period and reflect management’s best estimate. The discount rates are set in line with the best available estimate of market yields currently available at the reporting date with reference Saudi Arabia interest 4.1.2. Standards issued but not yet effective (continued) rate swap curve or other basis, if applicable.

d ) Annual improvements to IFRS (2014 – 2016) cycle Impairments of estimated value of receivables from finance lease • IFRS 1 First-time Adoption of IFRS - Outdated exemptions for first-time adopters of IFRS are removed. Effective for annual periods beginning from January1, 2018. The Group is conducting a study to determine whether there is a decrease in the value of the financial lease • IAS 28 Investments in Associates and Joint Ventures - A venture capital organization, or other qualifying entity, receivables based on the nature and duration of the contract and the related terms. may elect to measure its investments in an associate or joint venture at fair value through profit or loss. This election can be made on an investment-by-investment basis. A non-investment entity investor may elect to 4.3. Cash and cash equivalents retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture. The Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and cash adjustments should be accounted for using a retrospective approach, and it is effective from January 1, 2018 equivalent, short-term deposits, and Murabaha with an original maturity of three months or less, which are not and early adoption is permitted. In case, the Company will follow the adjustment, the Company should disclose subject to a significant risk of changes in value. Restricted cash and cash equivalents that are not available for it. This exemption is not applicable to the Group. use are excluded from cash and cash equivalents for the purposes of the consolidated statement of cash flows. Restricted cash and cash equivalents are related to amounts restricted for repayments of the current portion of 4.2 Significant accounting judgement, estimates, and assumptions loans that are due within 180 days from the date of the consolidated statement of financial position.

The preparation of the Group consolidated financial statements requires management to make judgments, 4.4. Inventories estimates, and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various Inventories consisting of fuel and lubricants on board of the vessels are shown as inventories at the consolidated other factors that are believed to be reasonable under the circumstances, the result of which form the basis of statement of financial position date, and the cost is determined using the First in First Out (FIFO) method. Spare making the judgments about the carrying values of assets and liabilities that are not readily apparent from other parts and other consumables on board for each vessel are charged to operating expenses upon purchase. Cost sources. Therefore, actual results may differ from these estimates. includes the net purchase price and any other direct expenses related to the acquisition.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are 4.5. Investment in associates and joint ventures recognized in the yearend financial statements in which the estimates are revised if the revision affects only those yearend financial statements, or in the year end financial statements of the revision and future periods if the revision An associate is an entity over which the Group has significant influence. Significant influence is the power to affects both current and future periods. participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the In the process of applying the Group’s accounting policies, management has made the following estimates and arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of judgments, which are significant to the consolidated financial statements: control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining whether significant influence or joint Determining the estimated residual values and estimated useful lives of property and control are similar to those necessary to determine control over subsidiaries. equipment Under the equity method, the investment in an associate or joint venture is initially recognized at cost. The carrying The estimated residual values and estimated useful life of the property and equipment are reviewed by management amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or at each annual reporting period. Based on the review, prospective adjustments are made to the estimated residual joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying value and estimated useful life of property and equipment. amount of the investment and is not tested for impairment separately. The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is Provisions presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate The provision policy for doubtful debts of the Group is based on the ageing analysis and management›s continuous and joint venture are eliminated to the extent of the interest in the associate or joint venture. evaluation of the recoverability of the outstanding receivables. Management considers in assessing the ultimate realization of these receivables among other factors, the creditworthiness and the past collection history of each The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of customer. If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling to make payments, additional allowances may be required. interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. 162 Annual Report 2017 163

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.6. Property and equipment (continued) December 31, 2017 (In Thousands Saudi Riyal) An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between 4. SIGNIFICANT ACCOUNTING POLICIES (continued) the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income when the asset is derecognized. 4.5. Investment in associates and joint ventures (continued) The residual values, remaining useful lives, and methods of depreciation of property and equipment are reviewed at After application of the equity method, the Group determines whether it is necessary to recognize an impairment each financial reporting period and adjusted prospectively, if difference is material. loss on its investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate or joint venture is impaired. If this is the case, the Group calculates Spare parts and capitalized machines, meeting the definition of property, plant and equipment, are accounted as the amount of impairment as the difference between the recoverable amount of the associate or joint venture and per the principles of IAS 16 with respect to property plant and equipment. its carrying value and recognizes the loss as ‘Share of profit of an associate and a joint venture’ in the consolidated statement of income. 4.7. Ships Under construction

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and Ships under constructions includes amounts paid for the construction of new vessels that are not ready for their recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate intended use at yearend These assets are transferred to relevant assets categories and are depreciated once they or joint venture upon loss of significant influence or joint control and the fair value of the retaining investment and are available for their intended use. proceeds from disposal is recognized in the consolidated statement of income. 4.8. Goodwill and other intangible assets 4.6. Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if Goodwill any. Such cost includes the cost of replacing parts of the property and equipment and borrowing costs for long- Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and term construction projects (qualified assets) if the recognition criteria are met. the amount recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate When significant parts of property and equipment are required to be replaced at intervals, the Group recognizes consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired such parts as individual assets with specific useful lives and depreciates them accordingly. and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the equipment as aggregate consideration transferred, then the gain is recognized in the consolidated statement of income. a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the consolidated statement of income as incurred. The present value of the expected cost for the decommissioning of For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units the asset after its use, is included in the cost of the respective asset if the recognition criteria for a provision are met. (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. Depreciation is calculated using the straight-line method, net of their residual values, over their estimated useful A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently lives as follows: when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill Asset class Estimated useful lives (in years) allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset Buildings and improvements 3-20 in the unit. Any impairment loss for goodwill is recognized directly in the consolidated statement of income. An impairment loss recognized for goodwill is not reversed in subsequent periods. On disposal of the relevant cash- Fleet and equipment 6-25 generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Containers and trailers 5-12 Furniture and fixtures 10 Intangible Assets Tools and office equipment 4 Intangible assets other than goodwill are measured at cost, less accumulated amortization and accumulated Motor vehicles 4-5 impairment losses, if any. Intangible assets are amortized on a straight-line basis over their estimated useful lives. Computer equipment 4-6 Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the Containers yard equipment 4-10 expenditure will flow to the Group and amount can be measured reliably. Intangible assets› residual values, useful lives and impairment indicators are reviewed at each financial year end and adjusted prospectively, if considered necessary. If an item of property and equipment comprises individual components for which different depreciation methods or rates are appropriate, then each component is depreciated separately. A separate component may either be The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives a physical component or a non-physical component that represents a major inspection or overhaul (such as dry are amortized over the useful economic life and assessed for impairment whenever there is an indication that the docking of vessels). intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the For the purpose of recognition of the Group’s vessels, estimate of first dry docking costs are considered as a expected pattern of consumption of future economic benefits embodied in the asset, are accounted for by changing major component of a vessel which are recorded as a separate asset and depreciated separately. Subsequent dry the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The docking costs are capitalized as a separate asset and depreciated over the period until the next scheduled dry amortization expense on intangible assets with finite life is recognized in the consolidated statement of income. docking. Dry docking assets that are left undepreciated during another dry-docking operation are charged to the consolidated statement of income during the period in which such operation is commenced. 164 Annual Report 2017 165

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.10. Financial Instruments December 31, 2017 (In Thousands Saudi Riyal) A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets 4.9. Leases Initial recognition and measurement Group as a lessor The Company classifies non-derivative financial assets into the following categories: financial assets at fair value Leases in which the Group transfers substantially all the risks and rewards incidental to the ownership of an asset to through statement of income, held-to-maturity financial assets, loans and receivables and available-for-sales the lessees are classified as finance leases. Finance leases are recorded at the inception of the lease at the lower of financial assets. the fair values of the leased asset and the present value of the minimum lease payments. Measurement Gross investment in finance leases include the total of future lease payments on finance leases (lease receivables), plus estimated residual amounts receivable. The difference between the lease receivables and the cost of the leased Financial assets at fair value through statement of income - A financial asset is classified as at fair value through asset is recorded as unearned lease finance income and for presentation purposes, is deducted from the gross statement of income if it is classified as held for-trading or is designated as such on initial recognition. Directly in finance leases. Any unguaranteed residual value of the assets is reviewed periodically and any decrease in the attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value income residual value is recorded immediately. statement are measured at fair value and changes therein, including any interest or dividend income, are recognized in consolidated statement of income. Initial direct costs incurred by lessors in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the lease income. Financial assets held-to-maturity - These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest Group as a lessee method.

Finance leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the Available-for-sale financial assets - These assets are initially recognized at fair value plus any directly attributable leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, are the present value of the minimum lease payments. Lease payments are apportioned between finance charges and recognized in statement of other comprehensive income and recorded in accumulated fair value of financial assets. a reduction in the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. When these assets are derecognized, the gain or loss accumulated in equity is reclassified to profit or loss. Finance charges are recognized in finance costs in the consolidated statement of income. Financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the through consolidated statement of income, transaction costs that are attributable to the acquisition of the financial Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated asset. useful life of the asset and the lease term. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or An operating lease is a lease other than a finance lease. Operating lease payments are recognized as an operating convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group expense in the consolidated statement of income on a straight-line basis over the lease term. Notes to the commits to purchase or sell the asset. Consolidated Financial Statements (continued) 31 December 2017 (In Thousands Saudi Riyal) Subsequent measurement

For purpose of subsequent measurement, financial assets are classified in three categories: a ) Receivables b ) Investments held to maturity c ) Available for sales “AFS” financial assets

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the Effective Interest Rate “EIR” method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income in finance costs for loans and in cost of sales or other operating expenses for receivables. 166 Annual Report 2017 167

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.10. Financial Instruments (continued) December 31, 2017 (In Thousands Saudi Riyal) Impairment of financial assets 4. SIGNIFICANT ACCOUNTING POLICIES (continued) The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that have occurred since the initial 4.10. Financial Instruments (continued) recognition of the asset (an incurred ‘loss event’), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications Investments held-to-maturity that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held- data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears to-maturity investments when the Group has the positive intention and ability to hold them to maturity. After initial or economic conditions that correlate with defaults. measurement, held-to-maturity investments are measured at amortized cost using the EIR method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that Financial assets carried at amortized cost are an integral part of the EIR. The EIR amortization is included as finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income as finance For financial assets carried at amortized cost, the Group first assesses whether impairment exists individually for costs. financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, AFS financial assets whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which AFS financial assets include equity investments. Equity investments classified as AFS are those that are neither an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. classified as held-for-trading nor designated at fair value through income statement. The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains or and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been losses recognized in OCI and credited to the AFS reserve until the investment is derecognized, at which time, incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. the cumulative gain or loss is recognized in other comprehensive income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the consolidated statement of income in The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in finance costs. Finance income earned whilst holding AFS financial assets is reported as finance income using the the consolidated statement of income. Finance income (recorded as finance income in the consolidated statement EIR method. of income) continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans, together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has Unquoted equity instruments are carried at cost as their fair value cannot be measured reliably. been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases The Group evaluates whether the ability and intention to sell its AFS financial assets in the near term is still or decreases because of an event occurring after the impairment was recognized, the previously recognized appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold recovery is credited to finance costs in the consolidated statement of income. the assets for the foreseeable future or until maturity. AFS financial assets For a financial asset reclassified from the AFS category, the fair value at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset that has been recognized in equity is amortized to the For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence that an consolidated statement of income over the remaining life of the investment using the EIR. Any difference between investment or a group of investments is impaired. the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged consolidated statement of income. decline in the fair value of the investment below its cost. ‘Significant decline’ is evaluated against the original cost of the investment and ‘prolonged decline’ against the period in which the fair value has been below its original Derecognition cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is consolidated statement of income – is removed from OCI and recognized in the consolidated statement of income. primarily derecognized (i.e., removed from the Group’s consolidated statement of financial position) when: Impairment losses on equity investments are not reversed through income statement; increases in their fair value after impairment are recognized in OCI. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. a) The rights to receive cash flows from the asset have expired, or In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of b) The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the an investment is less than its cost. received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred In the case of debt instruments classified as AFS, the impairment is assessed based on the same criteria as nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. financial assets carried at amortized cost. However, the amount recorded for impairment is cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income. Future finance costs continue to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The finance costs are recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. 168 Annual Report 2017 169

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.10. Financial Instruments (continued) December 31, 2017 (In Thousands Saudi Riyal) Financial liabilities (continued) 4. SIGNIFICANT ACCOUNTING POLICIES (continued) Offsetting of financial instruments 4.10. Financial Instruments (continued) Financial assets and financial liabilities are offsetted and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an Financial liabilities intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. Initial recognition and measurement Hedge agreements and derivative financial instruments Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through consolidated statement of income, loans and borrowings, payables, or as derivatives designated as hedging instruments in an The Group uses derivative financial instruments to hedge its exposure to certain portions of its interest rate risks effective hedge, as appropriate. arising from financing activities. The use of financial derivatives is governed by the Group’s policies, which provide principles on the use of financial derivatives consistent with the Group’s risk management strategy. The Group All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially of directly attributable transaction costs. measured at fair value on the contract date and are re-measured to fair value at subsequent reporting dates.

The Group’s financial liabilities include trade and other payables, and loans and borrowings. Changes in the fair value of derivative financial instruments that are designated as effective hedges of future cash flows are recognized directly in equity, if material and the ineffective portion is recognized immediately in the Subsequent measurement consolidated statement of income. If the cash flow hedge of a firm commitment or forecasted transaction results The measurement of financial liabilities depends on their classification, as described below: in the recognition of an asset or a liability, then, at the time the asset or liability if recognized, the associated gain or loss on the derivative that had previously been recognized is included in the initial measurement of the asset Financial liabilities at fair value through statement of income or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognized in the consolidated statement of income in the same period in which the hedged item affects net income Financial liabilities at fair value through consolidated statement of income include financial liabilities held-for-trading or loss. and financial liabilities designated upon initial recognition as at fair value through consolidated statement of income. Changes in fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in the consolidated statement of income as they arise. Hedge accounting is discontinued when the hedging instrument Financial liabilities are classified as held-for-trading if they are incurred for the purpose of repurchasing in the near expires or is sold, terminated, or exercised, or no longer qualified for hedge accounting. At that time, for forecast term. This category also includes derivative financial instruments entered into by the Group that are not designated transactions, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also the forecasted transactions occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain classified as held-for-trading unless they are designated as effective hedging instruments. or loss recognized in equity is transferred to the consolidated statement of income.

Gains or losses on liabilities held-for-trading are recognized in the consolidated statement of income. 4.11. Classification of assets and liabilities to “current” and “non-current”

Financial liabilities designated upon initial recognition at fair value through income statement are designated at the The Group presents assets and liabilities in the statement of financial position based on current/non-current initial date of recognition, and only if the criteria in IAS 39 are satisfied. The Group has not designated any financial classification. An asset is current when it is: liability as at fair value through statement of income. • Expected to be realized or intended to be sold or consumed in the normal operating cycle Long term loans • Held primarily for the purpose of trading • Expected to be realized within twelve months after the reporting period, or After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve the EIR method. Gains and losses are recognized in the consolidated statement of income when the liabilities are months after the reporting period derecognized as well as through the EIR amortization process. All other assets are classified as non-current. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the consolidated statement of A liability is current when: income. • It is expected to be settled in the normal operating cycle This category generally applies to interest-bearing loans. • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period, or Derecognition • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. All other liabilities are classified as non-current. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statement of income. 170 Annual Report 2017 171

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.15. Foreign currency translation December 31, 2017 (In Thousands Saudi Riyal) On consolidation, the assets and liabilities of foreign operations are translated into Saudi Riyal at the rate of exchange prevailing at the reporting date of the preparation of the consolidated financial statements and their 4. SIGNIFICANT ACCOUNTING POLICIES (continued) consolidated statements of income are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign 4.12. Revenue recognition operation, the component of OCI relating to that particular foreign operation is reclassified to consolidated statement of income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments Revenue from transportation to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. Revenue is primarily generated from the rendering of transport services. Revenue is therefore recognized using the percentage-of-completion method as per IAS 18 and the percentage of completion / transport progress is 4.16. Zakat and tax determined based on the length of estimated voyage. Zakat is provided for the Company and its subsidiaries in the Kingdom of Saudi Arabia in accordance with the Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair Regulations of General Authority of Zakat and Tax (the “GAZT”) in the Kingdom of Saudi Arabia, and the provision is value of the consideration received or receivable, taking into account contractually defined terms of payment charged to the consolidated statement of income. and excluding taxes or duty. The Group determines whether it acts as a principal or an agent.The Group has For subsidiaries outside the Kingdom of Saudi Arabia, income tax is provided for in accordance with the regulations concluded that it is the principal in all of its revenue arrangements since it is the primary obligor in all the revenue applicable in the respective countries and is charged to the consolidated statement of income. arrangements, has pricing latitude, and is also exposed to credit risks. Provision is made for withholding tax on payments to non-resident parties and is charged to the consolidated statement of income. Under the above method, voyages are calculated on a discharge-to-discharge basis. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due and associated costs. 4.17. Borrowing costs Revenues from chartering and other attributable activities are recorded when services are rendered over the duration of the related contractual services. Borrowing costs are directly attributed to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period in which they occur. Borrowing Onerous contracts costs consist of finance and other costs that an entity incurs in connection with the borrowing of funds. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. For contracts that became onerous, the present obligation under the contract is recognized and measured as a provision. 4.18. Impairment of non-financial assets

Other income The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any Other income is recognized when earned. indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of 4.13. Bunker subsidy disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Groups of assets. Where the carrying amount Bunker subsidy is recognized where there is reasonable assurance that the grant will be received and all attached of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its conditions will be complied with. When the grant relates to an expenses item, it is recognized as income on a recoverable amount. systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. The Group recognizes unconditional government grant related to bunker purchase in consolidated statement of income In assessing value in use, the estimated future cash flows are discounted to their present value using a discount as bunker subsidy income. rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such 4.14. Foreign currency transaction transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group’s consolidated financial statements are presented in Saudi Riyals, which is also the parent Company’s Impairment losses of continuing operations are recognized in the consolidated statement of income in those functional currency. For each entity, the Group determines the functional currency and items included in the expense categories consistent with the function of the impaired asset, except for a property previously revalued financial statements of each entity are measured using that functional currency. where the revaluation was taken to OCI. In this case, the impairment is also recognized in OCI up to the amount of any previous revaluation. Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication foreign currencies are translated at the functional currency spot rates of exchange at the consolidated financial that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, statements reporting date for the Group. All differences arising on settlement or translation of monetary items are taken to the statement of income with the exception of differences on foreign monetary items that form part of a the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed net investment in a foreign operation. These are recognized in OCI until the disposal of the net investment, at which only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last time they are reclassified to a consolidated statement of income. Tax charges and credits attributable to exchange impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its differences on these monetary items are also recorded in OCI. recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Non-monetary items that are measured in terms of a historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of a gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or consolidated statement of income, respectively). 172 Annual Report 2017 173

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes to the Consolidated Financial Statements (continued) 4.21. Employees’ benefits(continued) December 31, 2017 (In Thousands Saudi Riyal) Past service costs are recognized in profit or loss on the earlier of: • The date of the plan amendment or curtailment, and 4. SIGNIFICANT ACCOUNTING POLICIES (continued) • The date on which the Group recognizes related restructuring costs

4.18. Impairment of non-financial assets(continued) Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under “general and administrative expenses” Such reversal is recognized in the consolidated statement of income unless the asset is carried at a revalued in the consolidated statement of income: amount, in which case the reversal is treated as a revaluation increase. • Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non- The following criteria are also applied in assessing impairment of specific assets: routine settlements, and • Net interest expense or income. • Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired. 4.22. Provisions • Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than their carrying Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and periods. a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision • Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level, as appropriate to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate and when circumstances indicate that the carrying value may be impaired. asset but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the consolidated statement of income net of any reimbursement. 4.19. Non-current assets held for sale 4.23. Contingent assets and liabilities The Group classifies non-current assets as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets groups classified as held for Contingent assets are not recognized in the consolidated financial statements, but are disclosed when an inflow of sale are measured at the lower end of their carrying amount and fair value less costs to sell. Costs to sell are the economic benefits is probable. incremental costs directly attributable to the disposal of an asset, excluding finance costs and zakat expense. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or is An assessment is made at each reporting date to recognize contingent liabilities which are probable obligations available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is arising from past events whose existence is confirmed only by the occurrence or non-occurrence of one or more unlikely that significant changes to the sale will be made or that the decision to sale will be withdrawn. Management uncertain future events not wholly under the control of the Group. is committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification. 4.24. Earnings per share Property, plant and equipment and intangible assets are not depreciated or amortized once classified as held for The Group determines basic earnings per share by dividing profit or loss attributable to ordinary equity holders sale. (the numerator) by ordinary equity of the parent by the weighted average number of ordinary shares outstanding (the denominator) during the year. For the purpose of calculating basic earnings per share, the number of 4.20. Cash dividends to the shareholders ordinary shares is the weighted average number of ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding The Group recognizes a liability to make cash distribution to equity holders of the Parent when the distribution is at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the authorized and the distribution is no longer at the discretion of the Group. In accordance with the Companies Law in period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the shares are KSA, a distribution is authorized when it is approved by the shareholders. outstanding as a proportion of the total number of days in the period; a reasonable approximation of the weighted average is adequate in many circumstances. 4.21. Employees’ benefits Diluted EPS amounts are calculated by dividing the profit attributable to equity shareholders of the parent by the The Group has defined benefit plans with General Organization for Social Insurance “GOSI” where the Group weighted average number of equity shares outstanding during the year plus the weighted average number of equity and the employees contribute fixed percentage of their salary toward the retirement of its employees. The Group shares that would be issued on conversion of all the dilutive potential equity shares into equity shares. operates defined benefit plans, under the Saudi Arabian Labor Law based on employees’ accumulated periods of service at the consolidated statements of financial position. 4.25. Statutory reserve

The cost of providing benefits under the defined benefit plans is determined separately for each plan using the In accordance with the Saudi Arabian Regulations for Companies, the Company must transfer 10% of the net projected unit credit method. income in each year to the statutory reserve until it has built a reserve equal to 30% of the capital. This reserve is not available for distribution. Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the year end in which they occur. Re- measurements are not reclassified to profit or loss in subsequent periods. 174 Annual Report 2017 175

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

5. OPERATING SEGMENTS

Notes to the Consolidated Financial Statements (continued) For management purposes, the Group is organized into business units based on its operations as it is illustrated in December 31, 2017 (In Thousands Saudi Riyal) note 4.26:

4. SIGNIFICANT ACCOUNTING POLICIES (continued) Dry bulk Adjustments Oil transpor- Head office 2017 Chemical Logistic transporta- and elimina- Total tation and Others 4.26. Operating segments tion tions’

For management purposes, the Group is organized into business units based on their operations and has the Revenue 3,726,244 805,270 1,136,967 362,297 107,018 (91,961) 6,045,835 following reportable segments: • Oil transportation Operating cost (3,114,438) (677,289) (803,992) (315,299) (91,961) 91,961 (4,911,018) • Chemical transportation Bunker subsidy 164,986 9,842 11,036 - - - 185,864 • Logistics • Dry bulk transportation, Gross profit 776,792 137,823 344,011 46,998 15,057 - 1,320,681 General and admin- • Others and corporate (5,706) (15,831) (2,311) (15,089) (132,337) - (171,274) istrative expenses Note 1 to the consolidated financial statements describes the operations related to the above segments. “Others Other income (ex- - (28,193) 7,057 387 (3,449) - (24,198) and corporate” column consist of the vessel’s technical operations management and Group’s corporate activities. penses), net The Group’s management monitors the operational results of the segments separately for the purposes of making Finance income - 1,410 - 999 5,935 - 8,344 decisions about resource allocation and performance assessment. Segments’ performance is evaluated based on the profit or loss and measured consistently with the profit or loss in the consolidated financial statements. Finance cost (160,804) (58,657) (23,856) (20,506) (44,612) - (308,435) Share in a result of - - - - 82,153 - 82,153 The Group’s accounting policies used in the segment reporting is the same as the accounting policies described in an associate note 4 to the consolidated financial statement. Income before 610,282 36,552 324,901 12,789 (77,253) - 907,271 zakat & taxes Intersegments revenues are recorded either at values that approximate third-parties selling prices or at prices mutually agreed by the management of the operating segments. Inter-segment revenues are eliminated upon consolidation and reflected in the ‘adjustments and eliminations’ column. Dry bulk Adjustments Oil transpor- Head office 2016 Chemical Logistic transporta- and elimina- Total tation and Others tion tions’

Revenue 4,797,713 774,148 931,772 271,156 98,748 (85,053) 6,788,484 Operating cost (3,527,352) (611,325) (666,368) (225,366) (85,053) 85,053 (5,030,411) Bunker subsidy 117,565 4,524 12,169 - - - 134,258 Gross income 1,387,926 167,347 277,573 45,790 13,695 - 1,892,331 General and admin- - (15,432) 24,889 (12,009) (108,510) - (111,062) istrative expenses Other income (ex- (44,219) 29,569 3,181 26 9,935 - (1,508) penses), net Finance income - 314 - 607 18,034 - 18,955 Finance cost (127,761) (43,376) (24,714) (11,401) (32,309) - (239,561) Share in a result of - - - - 147,044 - 147,044 an associate Income before 1,215,946 138,422 280,929 23,013 47,889 - 1,706,199 zakat & taxes

The Group›s vessels are deployed throughout the world and are not concentrated in certain geographical areas. The Group›s management does not consider geographical distribution by its management analysis of operations. Therefore, geographical segment information is not disclosed.

The revenues of the crude oil transportation sector include SAR 2.5 billion for the year ending December 31, 2017 (SR 2016: SAR 3.4 billion) from one customer (ARAMCO and its subsidiaries - shareholders), which represents more than 10% of the revenues of Crude Oil Transportation and the Groups revenues as a whole. 176 Annual Report 2017 177

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

6.PROPERTY AND EQUIPMENT

Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal) 2017

Furniture Tools Containers 5. OPERATING SEGMENTS (continued) Building and Fleet and Containers Motor Computer and and office yard Total improvements equipment* and trailers vehicles equipment fixtures equipment equipment

Dry bulk Cost Oil trans- Head office 2017 Chemical Logistic transporta- Total portation and Others At January tion 54,512 19,404,770 29,471 11,968 4,176 4,454 63,699 14,435 19,587,485 1, 2017 Property and equipment 9,847,834 2,975,050 1,343,650 533,440 46,562 14,746,536 Additions/ 796 1,875,697 5,364 413 238 - 5,995 - 1,888,503 Total assets 12,423,200 3,548,304 2,327,355 688,573 2,195,151 21,182,583 transfers Total liabilities 6,849,952 2,116,263 947,529 359,611 991,197 11,264,552 Disposals - - (14,596) (8) (256) (3,322) (111) - (18,293) At December 55,308 21,280,467 20,239 12,373 4,158 1,132 69,583 14,435 21,457,695 Dry bulk 31, 2017 Oil trans- Head office 2016 Chemical Logistic transporta- Total portation and Others Accumulated depreciation tion At January Property and equipment 8,511,362 3,138,716 1,422,611 559,202 30,005 13,661,896 15,481 5,800,240 29,219 7,743 3,691 1,722 56,638 10,855 5,925,589 1, 2017 Total assets 11,570,776 3,741,470 1,971,912 704,739 2,848,358 20,837,255 Charge for 4,742 791,790 302 522 394 104 2,036 1,677 801,567 Total liabilities 5,948,036 2,324,146 1,095,470 387,928 994,578 10,750,158 the year Disposals - - (14,596) - (256) (1,034) (111) - (15,997)

Dry bulk At December Oil trans- Head office 20,223 6,592,030 14,925 8,265 3,829 792 58,563 12,532 6,711,159 January 1, 2016 Chemical Logistic transporta- Total 31, 2017 portation and Others tion Net book value: Property and equipment 7,808,188 2,740,528 1,478,975 592,789 22,189 12,642,669 As at Total assets 10,936,177 3,158,966 1,863,650 700,369 2,043,002 18,702,164 December 35,085 14,688,437 5,314 4,108 329 340 11,020 1,903 14,746,536 31, 2017 Total liabilities 4,979,168 1,858,006 1,138,964 407,949 998,898 9,382,985 *Certain vessels and tankers of the Group under fleet and equipment with a carrying value of SR 9.3 billion as at December 31, 2017, are pledged against the long term loans (note 18). 178 Annual Report 2017 179

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

6.PROPERTY AND EQUIPMENT (continued)

During 2017, the Group revised the estimated residual value of the fleet from 10% of the cost to more appropriate Notes to the Consolidated Financial Statements (continued) estimate of residual value, measured based on the average steel price for light weight tonnage. This method is December 31, 2017 (In Thousands Saudi Riyal) applied by leading transport companies. The Company also revised the estimated useful lives of five vessels, from 25 years to 22-23 years as a result of impact assessment for the expected change in certain environmental 6.PROPERTY AND EQUIPMENT (continued) regulations which are expected to be applied during 2020. These changes have been accounted for prospectively, resulted in a decrease in depreciation expenses for the year ending December 31, 2017 by SAR 65.7 million. This change will have a similar impact on the subsequent financial 2016 results of the Group until the end of the estimated residual lives of the assets.

Tools Contain- Building and Contain- Furni- Computer Fleet and and office Motor ers yard 7. SHIPS UNDER CONSTRUCTION Land improve- ers and ture and equip- Total equipment* equip- vehicles equip- ments trailers fixtures ment ment ment The movement in ships under construction is as follows:

Cost 2017 2016 January 1, 2016 At January 1,854 58,813 17,494,356 34,350 11,343 4,157 2,241 61,370 11,987 17,680,471 1,099,901 1, 2016 Beginning Balance 1,235,565 12,039 Additions/ Additions 784,955 327,834 1,098,412 - 715 1,981,664 - 625 297 2,213 2,374 2,448 1,990,336 transfers Transferred to property and equipment (1,061,130) (192,170) (10,550) Disposals (1,854) (5,016) (71,250) (4,879) - (278) - (45) - (83,322) Ending balance 959,390 1,235,565 1,099,901 At December - 54,512 19,404,770 29,471 11,968 4,176 4,454 63,699 14,435 19,587,485 31, 2016 • The Group signed contracts on May 21, 2015 and June 30, 2015 with the Korean company Hyundai Samho Heavy Industries for building ten VLCCs for a total amount of SAR 3.56 billion (US$ 948.90 million), Accumulated depreciation which expected to be received during 2017 and 2018. The Group paid an advance payment of SR 882 million At January - 14,846 4,912,708 34,096 6,376 3,727 1,481 54,054 10,514 5,037,802 (USD 235 million). The Group received five vessels during the current year 2017. 1, 2016 • Bahri Dry Bulk Company (a subsidiary) signed contracts on August 25,2017 with the Korean company Charge for - 4,693 905,521 - 1,367 133 241 2,626 341 914,922 Hyundai Samho Heavy Industries to build four bulk cargo carriers vessels for a total amount of SAR 450 the year million (US$ 120 million). These are expected to be received during the year 2020. Disposals - (4,058) (17,989) (4,877) - (169) - (42) - (27,135)

At 8. INTANGIBLE ASSETS December - 15,481 5,800,240 29,219 7,743 3,691 1,722 56,638 10,855 5,925,589 31, 2016 Intangible assets represent the long term substantial evaluation of transportation contracts, which resulted from purchasing the operations and assets of Vela Company (a subsidiary of ARAMCO) in 2014. The value of those Net book value: intangible assets are amortized over the estimated total average remaining useful life of the purchased vessels As at December - 39,031 13,604,530 252 4,225 485 2,732 7,061 3,580 13,661,896 31,2016 2017 2016 January 1, 2016 As at January 1,854 43,967 12,581,648 254 4,967 430 760 7,316 1,473 12,642,669 Cost 1, 2016 Opening balance 894,082 918,750 918,750 Disposals - (24,668) - *Certain vessels and tanker of the Group under fleet and equipment with a carrying value of SR 6.5 billion as at 31 December 2016, and SR 4.5 billion as at 1 January 2016 are pledged against the long term loans (note 18). Ending balance 894,082 894,082 918,750 Accumulated amortization Opening balance (122,018) (69,286) (15,249) Charge for the year (52,471) (54,690) (54,037) Disposals - 1,958 - Ending balance (174,489) (122,018) (69,286) Net book value 719,593 772,064 849,464 180 Annual Report 2017 181

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

9. INVESTMENT IN AN ASSOCIATES (continued)

Notes to the Consolidated Financial Statements (continued) 9.1. Petredec Limited (continued) December 31, 2017 (In Thousands Saudi Riyal) The table reconciles the summarized financial information to the carrying amount of the Group’s interest in Petredec as at 31 October: 9. INVESTMENT IN AN ASSOCIATES October October The balance of investment in an associates as at December 31 contains investments in the following companies: October 31, 2017 31 , 2016 31 , 2015

January v Note 2017 2016 Current assets 4,564,995 4,678,728 4,778,580 1, 2016 Non-current assets 6,276,377 5,700,871 3,630,451 Current liabilities (3,480,982) (3,528,806) (2,325,825) Petredec Limited 9-1 1,171,911 1,123,848 1,027,941 (3,733,051) (3,368,469) (2,911,184) International Maritime Industries Company 9-2 74,625 - - Non-current liabilities Net assets before non-controlling interest 3,627,339 3,482,324 3,172,022 1,246,536 1,123,848 1,027,941 Non-controlling interest (44,866) (58,464) (64,666) Share premium (108,333) (108,333) (108,333) 9.1. Petredec Limited Net assets 3,474,140 3,315,527 2,999,023 The movement of investment in Petredec Limited as at December 31 is as follows: Group’s share in net assets (30.30%) 1,052,734 1,004,671 908,764 January 2017 2016 119,177 119,177 119,177 1, 2016 Goodwill Carrying amount of investment in an associates 1,171,911 1,123,848 1,027,941 16,359,977 19,828,483 Beginning Balance 1,123,848 1,027,941 905,758 Revenue Share in results of an associated company 82,153 147,044 184,683 Dividends received during the year (34,090) (51,137) (62,500) Net income before non-controlling interest 272,507 494,473 Ending balance 1,171,911 1,123,848 1,027,941 Non-controlling interest (1,402) (9,228) Total net income for the year 271,105 485,245 Group’s share of total comprehensive income (30.30%) 82,153 147,044 The fiscal year of Petredec Limited begins as at September 1 and ends as at August 31 of each Gregorian year. The Company’s share in Petredec Limited results for the financial year is recorded as per the latest financial statements prepared. The difference between the latest financial statements prepared by the associate company and the The associate has SAR 1.3 billion contingent liabilities and capital commitments as at October 31, 2017 Group’s consolidated financial statements is two months. (October 31, 2016: SAR 1.2 billion, October 31, 2015: SAR 3.6 billion).

During 2017, the Group commenced the process to sell part of its 30.3% in Petredec Limited. As part of the 9.2. International Maritime Industries Company arrangement, Haydock Holdings Limited, the other partner in Petredec Limited, will also sell part of its 69.7% stake in Petredec Limited, bringing the total ownership of the new investor to 13% of Petredec Limited share capital. During 2017, International Maritime Industries Company wes established in KSA with capital of SR 375 million The Group expects the sale to take place during the first quarter of 2018, after fulfilling certain conditions including between the Company, ARAMCO, Hyundai Heavy Industries (South Korean Company) and Lamprell (a UAE-based shareholders’ approval, governmental and regulatory approvals. The Group has reclassified Petredec’s share from company). The Group’s share in the established company represents 19.9% and amounting to SR74.6 million. The “investment in an associates” to “Investment held for sale” amounting to SR 251 million as at December 31, 2017 new company has not started its operations yet as at December 31, 2017. which represents the carrying value of the assets held for sale 10. RECEIVABLES FROM FINANCE LEASE

On January 30, 2009, National Chemical Carriers Limited Co. (a subsidiary) signed an agreement with Odfjell (hereafter: lessee) to charter three vessels under a bareboat arrangement for a period of 10 years with a purchase option after three years. These ships were delivered to lessee on February 1, 2009. The arrangement is considered as a finance lease as it transfers to lessee substantially all the benefits and risks and gives the lessee a purchase option under the arrangement. 182 Annual Report 2017 183

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

12. INVENTORIES

Notes to the Consolidated Financial Statements (continued) The balance of inventory, located on the vessels, is as follows: December 31, 2017 (In Thousands Saudi Riyal) January 2017 2016 10. RECEIVABLES FROM FINANCE LEASE (continued) 1 , 2016

The net lease receivable balance is summarized as follows: Fuel 232,874 186,718 150,274 Lubricant 51,171 47,676 47,689 January 2017 2016 1, 2016 Others 6,714 6,281 5,647 290,759 240,675 203,610 Accounts receivable from finance leases 84,296 157,860 227,509 Unguaranteed residual value at the end of the contract* 116,231 148,875 148,875 Fuel expenses recognized in the consolidated statement of income for the year ended amounted to SR 1,084 million December 31, 2017 (2016: SR 806 million). Gross finance lease 200,527 306,735 376,384 Unearned lease finance income (21,932) (55,005) (88,545) 13. TRADE RECEIVABLES Net of receivables from finance lease 178,595 251,730 287,839 Trade receivable is includes the following items: Current portion 56,860 44,232 36,109 January 2017 2016 Non-current portion 121,735 207,498 251,730 1, 2016 178,595 251,730 287,839 Trade receivables 774,957 266,282 337,344 Receivable from related parties (Note 26) 277,481 397,495 378,849 *The Group has reviewed the unguaranteed residual value at the end of the lease agreement as at 31 December 2017, and found a reduction amounted to SR 32.6 million. An impairment of SR 28.9 million has been recognized 1,052,438 663,777 716,193 and charged to the consolidated statement of income (note 23). The remaining reduction of the unguaranteed Less: Provision for doubtful debts (32,766) (31,128) (46,580) residual value will be recognized over the remaining period of the contract. 1,019,672 632,649 669,613 The maturity of gross finance lease (i.e. minimum lease payment (MLPs) and net finance lease (i.e. present value of Unbilled revenues 455,316 439,080 320,266 MLPs) is as follows: Trade receivables, net 1,474,988 1,071,729 989,879

MLPs PV of MLPs MLPs PV of MLPs MLPs PV of MLPs The movement of provision for doubtful debts is as follows: 1 January 1 January 2017 2017 2016 2016 2016 2016 January 2017 2016 1, 2016

Less than one year 77,670 56,860 73,564 44,232 69,649 36,109 Opening balance 31,128 46,580 19,831 More than one year but less 122,857 121,735 233,171 207,498 306,735 251,730 than five years Charge (reversal) during the year ( Note 22) 1,638 (15,452) 26,749 Net investment receivable 200,527 178,595 306,735 251,730 376,384 287,839 Ending balance 32,766 31,128 46,580 in finance leases

The aging of trade receivables is as follows: January 11. OTHER INVESTMENTS 2017 2016 1, 2016 The balance of other investments includes the following: Less than 6 months 1,032,313 896,598 872,413 January From 6 months to 12 months 242,249 152,112 103,311 2017 2016 1, 2016 More than 12 months 233,192 54,147 60,735 Total trade receivables 1,507,754 1,102,857 1,036,459 Investments available for sale 10,711 13,533 13,533 Less: Provision for doubtful debts (32,766) (31,128) (46,580) Investment in government bonds 83 83 43 Trade receivables, net 1,474,988 1,071,729 989,879 Investments in Sukuk held to maturity - 10,000 10,000 10,794 23,616 23,576 Included in trade receivables amounts due from Government entities amounting to SAR 782 million as at December 31, 2017 (2016: SAR 323 million, 1 January 2016: SAR 306 million). These amounts constitute %53 of the net trade receivables as at 31 December 2017 (2016: 30%, 1 January 2016: 31%) amounts due for more than one year are amounts due from Government entities. 184 Annual Report 2017 185

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements 31 December 2017 (In Thousands Saudi Riyal)

17. STATUTORY RESERVE

Notes to the Consolidated Financial Statements (continued) In accordance with the Regulations for Companies in Saudi Arabia, the Company is required to transfer 10% of net December 31, 2017 (In Thousands Saudi Riyal) income for the year to a statutory reserve until such reserve amounts to 30% of its share capital. This reserve is not available for distribution to shareholders.

14. PREPAYMENTS AND OTHER CURRENT ASSETS Statutory reserve comprises of the following:

The balance of prepayments and other current assets includes the following: 1 January 2017 2016 1 January 2016 2017 2016 2016 Transfers from net income 964,732 884,701 708,787 Prepaid expenses 322,624 286,850 281.142 Shares premium 1,489,103 1,489,103 1,489,103 Insurance claims 12,397 8,406 10.953 Total statutory reserve 2,453,835 2,373,804 2,197,890 Advances to suppliers 9,274 42,361 26.942 Others 20,656 38,522 18,386 18. SUKUK AND LONG TERM LOANS 364,951 376,139 337.423 January 1 Note 2017 2016 2016 15.CASH AND CASH EQUIVALENTS 3,900,000 Cash and cash equivalents represent bank balances, cash, investments in Murabaha and short-term deposits. Sukuk 18-1 3,900,000 3,900,000 For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise of the Murabaha loans 18-2 6,268,676 5,646,869 3,916,832 following: Commercial loans 18-3 163,406 199,719 236,031

1 January Total sukuk and long term loans 10,332,082 9,746,588 8,052,863 2017 2016 2016 Less: Total current portion )1,075,289( )1,001,146( )547,016( Non-current sukuk and long term loans 9,256,793 8,745,442 7,505,847 Bank balances and cash 497,520 171,731 173,265 Less: prepaid financing )76,208( )81,884( )30,631( Murabaha and short term deposits (Note 15.1) 692,921 1,908,262 1,066,597 Net non-current sukuk and long term loans 9,180,585 8,663,558 7,475,216 Cash and cash equivalents in statement of cash flows 1,190,441 2,079,993 1,239,862 Amounts restricted by banks 18.1 Sukuk - Bank balances and cash (17,993) (14,342) (23,213) On 14 Shawwal 1436H (corresponding to 30 July 2015), the Company completed the issuance and offering of - Murabaha and short term deposits (87,715) (102,974) (73,818) local Sukuk denominated in Saudi Riyal for public offering with nominal value amounted to SR 3,900 million, and Total amounts restricted by banks (105,708) (117,316) (97,031) a nominal value of SR 1 million for each Sukuk. The Sukuk issuance bears a variable rate of return at (SIBOR) plus a predetermined margin, payable semi-annually. The Sukuk is due at maturity at par value on its expiry date of 1 15.1 Murabaha and Short-Term Deposits Muharram 1444 (corresponding to 30 July 2022).

Murabaha and short term deposit comprise of the following: 18.2 Murabaha loans

1 January The Group obtained long term loan during year ended 31 December 2017 amounted to SR 1,587 million (31 2017 2016 2016 December 2016: SR 2,290 million, 1 January 2016: Nil). The existing loans are secured by promissory notes and mortgages against vessels (note 6). These loans are usually repayable in 10 years on quarterly and semi-annual basis. These loans carry commission at normal commercial rates. Balance of loans against which profit to be paid 445,064 Murabaha and short - term deposits in USD 379,452 776,348 based on LIBOR as at 31 December 2017 is SR 3,235 million (31 December 2016: SR 3,240 million: 1 January 2016: Murabaha and short - term deposits in Saudi Riyals 313,469 1,463,198 290,249 SR 2,484 million) and balance of loans against which profit to be paid based on SIBOR at the end of 31 December 2017 is SR 3,033 million (31 December 2016: SR 2,407 million: 1 January 2016: SR 1,433 million). 692,921 1,908,262 1,066,597

Murabaha and short term deposit yield finance income at prevailing market rates. 18.3 Commercial loans 16. SHARE CAPITAL The Group did not obtain any long term loan during year endeding December 31, 2017 (31 December 2016: The Company’s share capital is comprises of 393,750 thousand shares with a par value of SR 10 per share. Total Nil, January 1, 2016: Nil). The existing loans are secured by mortgages against vessels (note 6). These loans are authorized, issued, and outstanding shares are SR 3,937,500,000 as at December 31, 2017, December 31, 2016, repayable in 10 years on semi-annual basis carrying special commission at LIBOR plus normal commercial margin. and January 1, 2016. Balances of loans against which profit to be paid based on LIBOR as at 31 December 2017 is SAR 163 million ( 31 December 2016: SAR 200 million, January 1, 2016: SAR 236 million ). 186 Annual Report 2017 187

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

19. EMPLOYEES’ BENEFITS

Notes to the Consolidated Financial Statements (continued) January 2017 2016 December 31, 2017 (In Thousands Saudi Riyal) 1, 2016

18. SUKUK AND LONG-TERM LOANS (continued) Opening balance 65,482 65,349 52,835 8,439 18.4 Commitments Current service cost 7,860 6,447 Interest cost 2,608 2,485 2,403 Loans agreements include commitments mainly related to maintaining certain ratios of leverage, debt to equity Benefits paid (5,131) (6,424) (7,397) ratio and other commitments. Under the terms of these agreements, banks are entitled to demand immediate repayment of loans if none of these undertakings are met. Re-measurement gain (loss) on defined benefit plans (1,352) (4,367) 11,061 Ending balance 69,467 65,482 65,349 18.5 Long term loans related to subsidiary The significant assumptions used in determining end of service benefit plans for the Group’s plans are shown 18.5.1 National Chemical Carriers Limited Co. below:

Long term loan balance for National Chemical Carriers Limited Co. consists of the following: 2017 2016 January 2017 2016 1, 2016 Discount rate 4,00% 4,00%

Murabaha loans 1,754,317 1,945,248 1,449,844 Withdrawal rate - for the first two years of service 30,00% 30,00% Commercial loans 163,406 199,719 236,031 Withdrawal rate - third year of service and above 3,00% 3,00% Total long term loans 1,917,723 2,144,967 1,685,875 Future salaries increase - for the first three years 3,00% 5,50% Less: Total current portion (245,547) (463,653) (199,954) Future salaries increase - fourth year and after 5,50% 5,50% 1,681,314 Non-current long term loans 1,672,176 1,485,921 A quantitative sensitivity analysis for significant assumptions on the defined benefit plans iSAR shown below: Less: prepaid financing (5,734) (6,423) -

Net non-current long term loans 1,666,442 1,674,891 1,485,921 2017 2016

18.5.2 Bahri Dry Bulk LLC Discount rate Long term loan balance for Bahri Dry Bulk LLC consists of the following: 0.5 % increase (3,582) (3,050) 0.5% decrease 3,887 3,577 January 2017 2016 1, 2016 Withdrawal rate 10% increase 600 622 Murabaha loans 324,450 353,850 383,250 10% decrease (675) (637) Total long - term loans 324,450 353,850 383,250 Future salary increases Less: Total current portion (29,400) (29,400) (29,400) 1% increase 8,319 7,295 Non-current long - term loans 295,050 324,450 353,850 1% decrease (7,193) (6,335) Less: prepaid financing (1,829) (2,105) (2,382) Net non-current long - term loans 293,221 322,345 351,468 The sensitivity analysis above has been determined based on a method that extrapolates the impact on the defined benefit plans as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses may not be representative of an actual change in the defined benefit plans as it is unlikely that changes in assumptions would occur in isolation from one another. 188 Annual Report 2017 189

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

21. ZAKAT AND TAXES (continued)

Notes to the Consolidated Financial Statements (continued) Zakat and Taxes status for National Chemical Carriers Company (continued)

31 December 2017 (In Thousands Saudi Riyal) The Company also filed an appeal against the assessment for the years from 2009 to 2012, and the appeal is still under review with the GAZT. The Company’s management believes that the provision for zakat and withholding tax is sufficient 20. TRADE AND OTHER PAYABLES (continued) as at December 31, 2017.

1 January The Company did not receive from GAZT the zakat assessments for the years from 2013 to 2016. 2017 2016 2016 Zakat and Tax status for Bahri Dry Bulk Trade payables 430,652 545,391 766,993 The Company submitted its zakat returns for the years up to 2016. The GAZT has not issue any zakat assessments on Accrued expenses 190,605 188,075 142,323 the subsidiary company since 2010 (date of incorporation). The subsidiary company believes that adequate provisions Unclaimed dividend 40,011 37,432 35,095 have been made against any potential zakat liability. Others* 33,679 29,521 54,182 22. GENERAL AND ADMINISTRATIVE EXPENSES 694,947 800,419 998,593 1 January 2017 * This item includes SAR 30.7 million as at January 1, 2016 and represents the balance of the amounts received from 2016 a shipbuilding company for the repairs related to the six vessels built by the National Chemical Transportation Company Limited (a subsidiary) SR 6.12 million for each vessel. One vessel was repaired during 2013 and during the year ending Employees salaries and benefits 91,833 84,234 December 31, 2016, repairs were made to the remaining five ships during the maintenance period resulting in savings of SAR 27.8 million, which were recognized in other income (note 23). Professional, legal and consultation fees 22,682 22,900 Amortization of prepaid expenses 15,075 4,872 21. ZAKAT AND TAXES Rent 10,146 9,056 The Group’s zakat is based on financial statements of the Company and its wholly owned subsidiaries, in accordance Depreciation 4,898 1,141 with the General Authority of Zakat and Tax (“GAZT’) Ministerial Resolution No. 1005 dated 28 Rabi’ Al-thani 1428H. Provision (reversal of provision) for doubtful debts (note 13) 1,638 (15,452) The Company and its wholly owned subsidiaries filed their zakat returns for each company separately. Others 25,002 4,311 The movement in the provision for zakat and taxes is as follows: 171,274 111,062

January 2017 2016 23. OTHER EXPENSES, NET 1, 2016

1 January 2017 Opening balance 219,553 296,811 142,898 2016 Provided for the year 100,760 106,649 181,354 Finance lease impairment (note 10) (28,904) - Reversal of tax provision - (150,176) - Gains (loss) from disposal of property and equipment 5,286 (32,942) Payments during the year (76,049) (33,731) (27,441) Vessels maintenance settlement (note 20) - 27,813 Ending balance 244,264 219,553 296,811 Recovery from insurance claims - 1,363 The Company has filed its zakat returns up to 2016. The zakat assessments have been agreed with the General Others (580) 2,258 Authority of Zakat and Tax (“GAZT”) for all the years up to 2007. The GAZT has raised the zakat assessment for the years 2008 to 2012 claiming additional liabilities of SR 79 million. The Company has filed an appeal on these (24,198) (1,508) assessments and the appeal is still under study. The Company believes it provided a sufficient provision for zakat and withholding tax as at December 31, 2017. The Company has recognized income tax on shares of one of the shareholder starting from January 1, 2017. 24. FINANCE COSTS

The Company did not receive from GAZT the zakat assessments for the years 2013 to 2016. January 2017 1,2016 Zakat and Taxes status for National Chemical Carriers Company

The Company has submitted its zakat returns for all fiscal years up to 2016 to the General Authority of Zakat and Tax Saudi Riyal sukuk 118,339 108,176 (the “GAZT”), zakat assessments have been agreed with the General Authority of Zakat and Tax (“GAZT”) for all the years up to 2004. The Company has received from the GAZT zakat assessments for the years 2005 to 2008 and for the Murabaha financing 148,461 125,882 years from 2009 to 2012 claiming additional payments of SR 10 million and SR 43 million respectively. The Company Drivatives re-valuation (note 28.3) 38,133 2,473 has filed an appeal against the Preliminary Appeal Committee resolution related to the assessment for the years from 2005 to 2008 to the higher appeal committee, which has still not been resolved as of this date of these financial Commercial loans 3,502 3,030 308,435 239,561 190 Annual Report 2017 191

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

28. FINANCIAL INSTRUMENTS

Notes to the Consolidated Financial Statements (continued) 28.1. Financial Assets December 31, 2017 (In Thousands Saudi Riyal) 1 January v Note 2017 2016 25. EARNINGS PER SHARE 2016

2017 2016 Derivatives not designated as hedging instruments: CAP commission options 28.3 67,572 96,267 56,629 Net income for the year attributable to equity holders of the parent Company 800,313 1,717,871 AFS financial assets at fair value through OCI Weighted average number of ordinary shares outstanding during the year 393,750,000 393,750,000 Unquoted equity shares 11 10,711 13,533 13,533 Earnings per share – basic 2.03 4.36 Total financial instruments at fair value 78,283 109,800 70,162 Earnings per share – diluted 2.03 4.36 Financial assets at amortized cost 26. RELATED PARTIES Trade receivables, net 13 1,474,988 1,071,729 989,879 Other investments* 11 83 10,083 10,043 The Group transacts with related parties in the ordinary course of its activities, as many of the Group’s Murabaha and short - term deposits 15.1 692,921 1,908,262 1,066,597 transactions and arrangements are based on signed agreements between the Group and those companies. The balances are unsecured, interest-free and repayable on demand unless otherwise stated. Total financial assets at amortized cost 2,167,992 2,990,074 2,066,519 Total financial assets 2,246,275 3,099,874 2,136,681 Operating revenues that generated from related parties are as follows:

* Other investment represents investment in Sukuk held to maturity. Refer to note 11 for breakdown of other 2017 2016 investments balance.

ARAMCO and its subsidiaries - shareholder 2,480,029 3,350,281 28.2 Financial Liabilities International Shipping and Transportation Co. Ltd. – affiliate 43,530 97,522 1 January Arabian Agricultural Services Company (ARASCO) – affiliate 112,367 112,633 Note 2017 2016 2016 Related party balances included in trade receivable (note 13) are as follows: Financial liabilities at amortized cost 1 January 9,664,704 2017 2016 Sukuk and long term loans 18 10,255,874 8,022,232 2016 Trade and other payables and Other liabilities 20 694,947 800,419 998,593

ARAMCO and its subsidiaries – shareholder 266,075 366,498 364,344 Total financial liabilities at amortized cost 10,950,821 10,465,123 9,020,825 International Shipping and Transportation Co. Ltd. – affiliate 11,406 30,997 14,505 Total financial liabilities 10,950,821 10,465,123 9,020,825 277,481 397,495 378,849 28.3 Fair values of financial instruments Compensation of key management personnel: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in an arm’s length transaction. Financial instruments comprised of financial assets 2017 2016 and financial liabilities.

The Group has derivative financial instruments consisting of commission rate options agreements to hedge Salaries and compensations 10,147 10,701 against fluctuations in commission rates. The loss from revaluation of these agreements is recognized in the Termination benefits 2,328 4,275 consolidated statement of income (note 24). Total Compensation 12,475 14,976

27. JOINT OPERATIONS

NCC, a subsidiary, acts as a ‘Manager’ for the Odfjell vessel, for the pool arrangement with Odfjell. As a manager, NCC has the responsibilities of conducting operations of Odfjell vessel, voyage planning, charter bunkering, invoicing and receiving revenue from customers,and negotiating employment of the vessel. Odfjell bears the costs of technical managing, repairing, insuring, supply provisioning Odfjell vessel,and perform any other obligations under financing/ mortgage of Odfjell vessel.

This arrangement accounted for as Joint arrangement (Joint arrangement) since both the parties have control over some of the activities. NCC, as a joint operator, recognizes its share of assets, liabilities, revenue and expenses in pool arrangement. 192 Annual Report 2017 193

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

28. FINANCIAL INSTRUMENTS (continued)

Notes to the Consolidated Financial Statements (continued) 28.4 Financial Risk Management (continued)

December 31, 2017 (In Thousands Saudi Riyal) The financial instruments in the consolidated statement of financial position primarily comprised primarily of cash and cash equivalent, investments, trade receivables, financing, trade payables, other accrued expenses, 28. FINANCIAL INSTRUMENTS (continued) derivative financial instruments and loans and sukuk.

28.3 Fair values of financial instruments(continued) Financial assets and liabilities are netted together and shown as a net amount, if the Group has the legal right to do so and the intention is to either settle on the net or recognize the assets and liabilities simultaneously. Higher The fair value hierarchy is as follows: management monitors the financial risk management department. The most important types of risk are summarized below: 2017 28.4.1. Credit risk Qouted Significant prices in the observable Significant v Unobservable Total Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a active market inputs inputs (Level 3) (Level 1) (Level 2) financial loss. The Group seeks to manage its credit risk by dealing with reputable banks and with respect to customers by setting credit limits for individual customers, monitoring outstanding receivables and ensuring close follow-ups. Available for sale: Unquoted equity shares * - - 10,711 10,711 Financial instruments and cash deposits Derivatives measured at fair value through Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in statement of income accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s CAP commission option - 67,572 - 67,572 Board of Directors on an annual basis.

2016 Limits are designed to minimize risk concentration and decrease financial loss through the inability of the Qouted Significant counterparty to make the payments. The maximum exposure to credit risk for the components of the prices in the observable Significant consolidated statement of financial position is the carrying amounts shown in note 28 except for financial Unobservable Total guarantees and derivative financial instruments. active market inputs inputs (Level 3) (Level 1) (Level 2) 28.4.2. Liquidity risk Available for sale: Liquidity risk represents the Group's difficulties in providing funds to meet commitments associated with financial Unquoted equity shares * - - 13,533 13,533 instruments. The Group's liquidity risk management policy is to ensure that sufficient liquidity and financing are Derivatives measured at fair value through available to meet its liabilities when due. statement of income CAP commission option - 96,267 - 96,267 The amounts in the table below represent contractual undiscounted cash flows:

1 January 2016 2017 Qouted Significant Within 3 3 to 12 1 to 5 More than No fixed Total prices in the observable Significant months months years 5 years maturity Unobservable Total active market inputs inputs (Level 3) (Level 1) (Level 2) - 281,296 793,993 3,181,590 2,175,203 6,432,082 Available for sale: Long term loans - - - 3,900,000 - 3,900,000 Unquoted equity shares * - - 13,533 13,533 Sukuk 520,038 107,906 26,992 - 40,011 694,947 Derivatives measured at fair value through Trade payable and other statement of income - - - - 69,467 69,467 current liabilities Profit rate caps - 56,629 - 56,629 Employee’s benefits 801,334 901,899 3,208,582 6,075,203 109,478 11,096,496 *Based on provisions of IAS 39, carrying value has been used as an approximation to the fair value

Management believes that the fair value of other assets and liabilities approximate to their carrying values.

28.4 Financial Risk Management

The Group's activities expose it to a variety of financial risks, including market risk (comprising currency risk, fair value risk, cash flows for commission rate, credit risk and liquidity risk). The Group’s risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance). 194 Annual Report 2017 195

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

28. FINANCIAL INSTRUMENTS (continued)

Notes to the Consolidated Financial Statements (continued) 28.4 Financial Risk Management (continued) December 31, 2017 (In Thousands Saudi Riyal) 28.4.3 Market risk (continued) 28. FINANCIAL INSTRUMENTS (continued) Commission rate risk (continued) 28.4 Financial Risk Management (continued) Sensitivity analysis for variable rate financial instruments

28.4.2. Liquidity risk (continued) The following table demonstrates the sensitivity of income to reasonably possible changes in commission rate on Sukuk and long-term loans, with all variables held constant. 2016 Within 3 3 to 12 1 to 5 More than No fixed Total 2017 2016 months months years 5 years maturity

Long term loans 182,338 818,807 2,901,463 1,862,095 - 5,764,703 Profit rate Sukuk - - - 3,900,000 - 3,900,000 Increase by 100 base points 99,602 85,702 Trade payable and other 37,432 Decrease by 100 base points (99,602 ) (85,702 ) 641,068 94,337 27,582 - 800,419 current liabilities Employees’ benefits - - - - 65,482 65,482 Other price risk 823,406 913,144 2,929,045 5,762,095 102,914 10,530,604 Price risk is the risk that the value of a financial instrument will fluctuate due to changes in market prices, whether those changes are due to factors related to the instrument or its source, or which affect all instruments traded in the market. 1 January 2016 The Group diversifies its investment portfolio to manage price risk arising from its equity investments. Within 3 3 to 12 1 to 5 More than No fixed Total months months years 5years maturity 28.4.4 Capital management

For the purpose of the Group’s capital management, capital includes issued capital, share premium and all other equity Long-term loans 168,742 378,274 1,552,447 2,022,769 - 4,122,232 reserves attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to Sukuk - - - 3,900,000 - 3,900,000 ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. Trade payable and other 62,186 840,334 74,382 21,691 - 998,593 current liabilities The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the Employees benefit’s - - - - 65,349 65,349 requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a debt 1,009,076 452,656 1,574,138 5,922,769 127,535 9,086,174 ratios, which is net debt divided by total capital plus net debt. The Group includes within net debt, Sukuk and long term loans, trade and other payables, less cash and short-term deposits. The Company has unutilized credit facilities of SR 2,154 million as at December 31, 2017 (2016: SAR 3,145 million, January 1, 2016: 713 million) to meet liquidity requirements. 1 January 2017 2016 2016 28.4.3 Market risk Sukuk and long term loan (note 18) 10,332,082 9,746,588 8,052,863 Market risk is the risk that the fair value or the future cash flows of a financial instrument may fluctuate as a result of changes in market prices. Market risk comprises of three types of risk: currency risk, commission rate risk and other Trade payables and other current liabilities (note 20) 694,947 800,419 998,593 price risk. Less: Cash and cash equivalent (note 15) (1,190,441) (2,079,993) (1,239,862) Net Debt 9,836,588 8,467,014 7,811,594 Currency risk Total equity 9,918,031 10,087,097 9,319,179 Currency risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of Total capital 9,918,031 10,087,097 9,319,179 changes in foreign exchange rates. The Group’s principal transactions are carried in Saudi Riyal, United States Dollar, Capital and net debt 19,754,619 18,554,111 17,130,773 and United Arab Emirates Dirham. The Group’s management believes that currency risk is not significant since the exchange rate of Saudi Riyal is pegged against those currencies. Gearing ratio 49.79% 45.63% 45.60%

Commission rate risk 29. CAPITAL COMMITMENTS AND CONTINGENCIES Commission rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market commission rates. The Group is subject to commission rate risk on its commission rate bearing Capital commitments assets and liabilities, including bank deposits and loans. The Group manages its exposure to commission rate risk by continuously monitoring movements in commission rates. The Group had executed CAP commission options to hedge The Group’s capital commitment related to the ships under construction and the purchase of property and the fluctuation in the commission rates. equipment SR 927 million as of December 31, 2017 (2016: SR 2.3 billion, 1 January 2016: SR3.3 billion) (note 7). 196 Annual Report 2017 197

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

31. NON-CONTROLLING INTERESTS IN SUBSIDIARIES

Set out below is summarized financial information for each subsidiary that has non-controlling interests, shown in Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal) note 1:

2017 29. CAPITAL COMMITMENTS AND CONTINGENCIES (continued) National Chemical Car- Bahri Dry Bulk Capital commitments (continued) Total rier Company LLC The Group signed a joint venture agreement on May 30, 2017 with Saudi Arabian Oil Company (ARAMCO), Hyundai Limited Heavy Industries Ltd. (South Korea) and Lamprell Power Company Limited (a UAE-based company) to enter into a partnership for the establishment, development, and operation of a maritime yard in Ras Al Khair near Jubail Industrial Non-controlling interest Percentage 20% 40% City. The partners will inject SR 2.625 billion (USD 700 million) of the project cost. The Group will contribute SR 522.38 Non-current assets 3,096,785 578,613 3,675,398 million (USD 139 million) with a 19.9% ownership, while ARAMCO will own 50.1%, Lamprell Power Company Limited will own 20%, and Hyundai Heavy Industries' share is 10%. The Group has signed a purchase contract for at least 75% Current assets 456,312 110,229 566,541 of its commercial vessel needs over a period of 10 years from the start date of the project, equivalent to 52 vessels, Non-current liabilities (1,669,399) (294,154) (1,963,553) including oil tankers “VLCC” based on the commercial rules. Current liabilities (451,948) (65,578) (517,526) Contingencies Non-controlling interests relating to the subsidiary - 12.048 12.048 Net assets 1,431,750 341,158 1,772,908 The Group has outstanding letters of guarantee of SR 314 million as at December 31, 2017 (2016: SAR 298 million, 1 Net assets attributable to non-controlling interests 286,350 136,463 422,813 January 2016: SR 297 million) issued during the Group’s normal course of business.

The Group is involved in legal litigation claims in the ordinary course of business, other than what has been disclosed in, Revenue 805,270 362,297 1,167,567 which are being defended, there are also some claims under the process of final settlement. The Group’s management Net income 14,429 8,280 22,709 does not expect that these claims will have a material adverse effect on the Group’s consolidated financial statements. Net income attributable to non-controlling interests 2,886 3,312 6,198 Operating lease commitments – Group as a lessor Cash flow from operating activities 75,246 17,213 92,459 The Group was committed to leasing certain of its vessels to a related party based on time charter agreement. The future amounts receivable under this lease agreement are as follow: Cash flow from investing activities 161,813 (14,188) 147,625 Cash flow from financing activities (226,966) (29,330) (256,296) 1 January 2017 2016 Increase (decrease) in cash and cash equivalents 10,093 (26,305) (16,212) 2016

2016 Within one year 536,336 584,382 495,476 National After one year but not more than five years 1,372,579 1,672,135 1,481,939 Chemical Car- Bahri Dry Bulk Total More than five years 703,042 939,822 569,852 rier Company LLC 2,611,957 3,196,339 2,547,267 Limited

Income from time charter agreements under operating lease amounted SR 584 million for the year endeding December Non-controlling interest Percentage 20% 40% 31, 2017 (2016: SAR 462 million). Non-current assets 3,356,214 559,202 3,915,416 Current assets 378,752 143,511 522,263 30.DIVIDENDS Non-current liabilities (1,679,586) (322,478) (2,002,064) The Board of Directors decided in its meeting held on December 31, 2017 to recommend to the General Assembly of Current liabilities (638,850) (65,578) (704,428) the Company the distribution of cash dividends of SAR 591 million to the shareholders for the financial year ending Net assets 1,416,530 314,657 1,731,187 December 31, 2017, which amounted to SAR 1.5 per share. Net assets attributable to non-controlling interests 283,306 125,863 409,169 The General Assembly of the shareholders of the Company approved in its meeting held on January 16, 2017 the distribution of cash dividends of SR 984.38 million to the shareholders for the financial year ending December 31, 2016, which amounted to SR 2.5 per share, and represented 25% of the share par value. These dividends were paid on Revenue 774,148 271,156 1,045,304 January 31, 2017. The General Assembly of the shareholders of the Company approved distribution of SAR 1.8 million Net income 115,415 21,930 137,345 to the Board of Directors. Net income attributable to non-controlling interests 23,083 8,772 31,855 The General Assembly of the shareholders of the Company approved in its meeting held on April 6, 2016 the distribution of cash dividends of SR 984.38 million to the shareholders for the financial year ended December 31, 2015, which Cash flow from operating activities 332,921 52,101 385,022 amounted to SR 2.5 per share, and represented 25% of the share par value. These dividends were paid on April 21, 2016. The General Assembly of the shareholders approved the Board of Directors remuneration distribution of SAR 1.8 Cash flow from investing activities (707,818) (320) (708,138) million. Cash flow from financing activities 459,091 (48,324) 410,767 Increase in cash and cash equivalents 84,194 3,457 87,651 The balance of unclaimed dividends as at December 31, 2017 amounted to SR 40 million (2016: SR 37.4 million, January 1, 2016: SR 35 million) (note 20). 198 Annual Report 2017 199

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

32. FIRST TIME ADOPTION OF IFRS (continued)

Notes to the Consolidated Financial Statements (continued) 32.1 Exemptions (continued) December 31, 2017 (In Thousands Saudi Riyal) Borrowing costs (continued) 31. NON-CONTROLLING INTERESTS IN SUBSIDIARIES The Group has applied the transitional provisions in IAS 23 Borrowing Costs and capitalizes borrowing costs relating to all qualifying assets after the date of transition. Similarly, the Group has not restated for capitalized borrowing costs under SOCPA GAAP on qualifying assets prior to the date of transition to IFRS as endorsed in 1 January 2016 KSA. National Chemical Car- Bahri Dry Bulk Total 32.2 Reconciliation of statement of financial position rier Company LLC Limited A. Reconciliation of statement of financial position as at 1 January 2016 (date of transition to IFRS as endorsed in KSA) Non-controlling interest Percentage 20% 40% Non-current assets 2,917,058 585,615 3,502,673 IFRS Adjustments Current assets 241,908 112,890 354,798 1 January 2016 Non-current liabilities (1,489,542) (351,245) (1,840,787) As at 1 January Re- Re- (IFRS as Note Current liabilities (368,309) (54,532) (422,841) 2016 (SOCPA GAAP) classification measurement endorsed in KSA) Net assets 1,301,115 292,728 1,593,843 ASSETS Net assets attributable to non-controlling interests 260,223 117,091 377,314 NON-CURRENT ASSETS Property and equipment 32,6 12,798,271 126,586 (282,188) 12,642,669 32. FIRST TIME ADOPTION OF IFRS Ships under construction 1,099,901 - - 1,099,901 These consolidated financial statements, for the year ending December 31, 2017, have been prepared in Intangible assets 849,464 - - 849,464 accordance with IFRS as endorsed in KSA. The Group prepared its consolidated financial statements for all years Investment in an associates 1,027,941 - - 1,027,941 up to the year December 31, 2016 in accordance with Generally Accepted Accounting Principal (GAAP) issued by Receivable from finance lease 32,7(c) 330,381 - (78,651) 251,730 Saudi Organization for Certified Public Accountants (“SOCPA”) in KSA (Refer to as “SOCPA GAAP”) Other investments 23,576 - - 23,576 Accordingly, the Group has prepared consolidated financial statements that comply with IFRS as endorsed in KSA along with the comparative figures for the year ending December 31, 2016. This note explains the principal Deferred dry-docking cost, net 126,586 (126,586) - - adjustments made by the Group in preparing: TOTAL NON-CURRENT ASSETS 16,256,120 - (360,839) 15,895,281 CURRENT ASSETS • The opening consolidated statement of financial position as at January 1, 2016, the Group’s date of Receivable from finance lease – current 8,208 transitioning from SOCPA GAAP to IFRS as endorsed in KSA. 32,7(c) 27,901 - 36,109 portion • Consolidated statement of financial position and reconciliation of equity as at December 31, 2016, and reconciliation of total comprehensive income for the year ending December 31, 2016. Inventories 203,610 - - 203,610 Trade receivables 32,7(A) 989,652 - 227 989,879 32.1 Exemptions Prepayments and other current assets 163,686 173,737 - 337,423 Accrued bunker subsidy 150,412 (150,412) - - IFRS "First time adoption of International Financial Reporting Standards" as endorsed in KSA allows first-time Incomplete voyage 6,369 (6,369) - - adopters certain exemptions from the retrospective application of certain requirements under IFRS. The Group has applied the following exemptions: Agents current account 47,587 (47,587) - - Murabaha and short term deposits 1,066,597 - - 1.066.597 Assets and liabilities of subsidiaries, associates and joint ventures Cash and cash equivalents 173,265 - - 173.265 TOTAL CURRENT ASSETS 2,829,079 (30,631) 8,435 2,806,883 An entity which becomes a first-time adopter later than its subsidiary, the entity shall in its consolidated financial statements measure the assets and liabilities of the subsidiary at the same carrying amounts as in the financial TOTAL ASSETS 19,085,199 (30,631) (352,404) 18,702,164 statements of the subsidiary, after adjusting for consolidation and equity accounting adjustments and for the EQUITY AND LIABILITIES effects of the business combination in which the entity acquired the subsidiary. EQUITY Share capital 3,937,500 - - 3,937,500 Mideast Ship Management Limited (a subsidiary based in UAE) and Petredec Limited (an associate based on Bermuda) have become first adopters of IFRS before the company. Hence, assets and liabilities have been Statutory reserve 2,197,890 - - 2,197,890 measured at the same carrying value. Other reserves 32.7(B) - - (11,061) (11,061) Retained earnings 3,149,268 - (331,732) 2,817,536 Business combinations Equity attributable to equity holder of the (342,793) 9,284,658 - 8,941,865 parent IFRS 3 "Business Combination" has not been applied to acquisition of subsidiaries, which are considered Non-controlling interests 414,420 - (37,106) 377,314 business for IFRS standards, or of interests in associates and joint ventures that occurred before January 1, 2016. TOTAL EQUITY 9,699,078 - (379,899) 9,319,179 Use of this exemption means carrying amounts of assets and liabilities recognized on the acquisition date under SOCPA, for such transactions have been considered to be their deemed cost. 200 Annual Report 2017 201

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

32. FIRST TIME ADOPTION OF IFRS (continued)

Notes to the Consolidated Financial Statements (continued) 32.2 Reconciliation of statement of financial position(continued) December 31, 2017 (In Thousands Saudi Riyal) B. Reconciliation of statement of financial position as at December 2016,,31 32. FIRST TIME ADOPTION OF IFRS (continued) IFRS Adjustments 31 December 31 December 2016 32.2 Reconciliation of statement of financial position(continued) Re- Re- Note 2016 (SOCPA (IFRS as classification measurement GAAP) endorsed in A. Reconciliation of statement of financial position as at 1 January 2016 (date of KSA) transition to IFRS as endorsed in KSA) (continued) ASSETS NON-CURRENT ASSETS Property and equipment 32.6 13,744,303 241,466 (323,873) 13,661,896 IFRS Adjustments Ships under construction 1,235,565 - - 1,235,565 1 January 2016 As at 1 January Re- Re- (IFRS as Intangible assets 772,064 - - 772,064 Note 2016 (SOCPA GAAP) classification measurement endorsed in Investment in associates 1,123,848 - - 1,123,848 KSA) Receivable from finance lease 32.7(C) 295,313 - (87,815) 207,498 LIABILITIES Other investments 23,616 - - 23,616 NON-CURRENT LIABILITIES Deferred dry-docking cost, net 241,466 (241,466) - - Sukuk and long term loans 7,505,847 (30,631) - 7,475,216 TOTAL NON-CURRENT ASSETS 17,436,175 - (411,688) 17,024,487 Employees’ benefits 32.7(B) 53,774 - 11,575 65,349 CURRENT ASSETS TOTAL NON-CURRENT LIABILITIES 7,559,621 (30,631) 11,575 7,540,565 Receivable from finance lease – current portion 32.7(C) 35,067 - 9,165 44,232 CURRENT LIABILITIES Inventories 240,675 - - 240,675 Long term loans - current portion 547,016 - - 547,016 Trade receivables 32.7(A) 1,063,600 - 8,129 1,071,729 Trade payables and other current liabilities 982,673 - 15,920 998,593 Prepayments and other current assets 311,941 64,198 - 376,139 Provisions for zakat and taxes 32.7(A) 296,811 - - 296,811 Accrued bunker subsidy 78,108 (78,108) - - TOTAL CURRENT LIABILITIES 1,826,500 - 15,920 1,842,420 Agents current account 67,974 (67,974) - - TOTAL LIABILITIES 9,386,121 (30,631) 27,495 9,382,985 Murabaha and short term deposits 1,908,262 - - 1,908,262 TOTAL EQUITY AND LIABILITIES 19,085,199 (30,631) (352,404) 18,702,164 Cash and cash equivalents 171,731 - - 171,731 TOTAL CURRENT ASSETS 3,877,358 (81,884) 17,294 3,812,768 TOTAL ASSETS 21,313,533 (81,884) (394,394) 20,837,255 EQUITY AND LIABILITIES EQUITY Share capital 3,937,500 - - 3,937,500 Statutory reserves 2,373,804 - - 2,373,804 Other reserve 32.7(B) - - (6,694) (6,694) Retained earnings 3,746,319 - (373,001) 3,373,318 Equity attributable to the equity holder of the (379,695) 10,057,623 - 9,677,928 parent Non-controlling interests 453,319 - (44,150) 409,169 TOTAL EQUITY 10,510,942 - (423,845) 10,087,097 LIABILITIES NON-CURRENT LIABILITIES Sukuk and long term loans 8,745,442 (81,884) - 8,663,558 Employees benefits 32.7(B) 54,348 - 11,134 65,482 TOTAL NON-CURRENT LIABILITIES 8,799,790 (81,884) 11,134 8,729,040 CURRENT LIABILITIES Long term loans - current portion 1,001,146 - - 1,001,146 Trade payables and other current liabilities 32.7(A) 782,102 - 18,317 800,419 Provisions for zakat and taxes 219.553 - - 219,553 TOTAL CURRENT LIABILITIES 2,002,801 - 18,317 2,021,118 TOTAL LIABILITIES 10,802,591 (81,884) 29,451 10,750,158 TOTAL EQUITY AND LIABILITIES 21,313,533 (81,884) (394,394) 20,837,255 202 Annual Report 2017 203

Consolidated Financial Notes to the Consolidated Financial Statements (continued) 11 Statements December 31, 2017 (In Thousands Saudi Riyal)

32. FIRST-TIME ADOPTION OF IFRS (continued)

Notes to the Consolidated Financial Statements (continued) 32.5 Reconciliation of income for the year ending December 31, 2016 December 31, 2017 (In Thousands Saudi Riyal) 31 December 32. FIRST-TIME ADOPTION OF IFRS (continued) Note 2016 32.3 Reconciliation of equity (IFRS)

Income as per SOCPA GAAP 1,798,039 1 January Note 2016 2016 Increase in depreciation expenses 32.6 (41,685) Total equity under SOCPA GAAP 10,510,942 9,699,078 Increase in service revenue 32.7(A) 5,505 Increase in accumulated depreciation 32.6 (323,873) (282,188) Increase in employees service cost 32.7(B) (3,926) Decrease in service revenue recognition 32.7(A) (10,187) (15,693) Decrease in lease finance income 32.7(C) (8,207) Decrease in employees’ benefits - actuarial valuation 32.7(B) (11,134) (11,575) Income as per IFRS as endorsed in KSA 1,749,726 Decrease in finance lease receivable 32.7(C) (78,651) (70,443) Equity under IFRS as endorsed in KSA 10,087,097 9,319,179 Other comprehensive income 4,367 32.4 Reconciliation of total comprehensive income for the year ending December 31, 2016 Total comprehensive income as per IFRS as endorsed in KSA 1,754,093

31 32.6 Property and equipment December 31 Decemeber 2016 Effect 2016 Note (SOCPA of IFRS Under IFRS as endorsed in KSA, property and equipment should be componentized and depreciated over each (IFRS as GAAP) Transition components’ useful life separately. The cost of dry docking is capitalized and depreciated separately over the endorsed in period till the next dry docking retrospectively, which previously was depreciated over the useful life of the assets. KSA)

32.7 Other adjustments Revenues 32.7 6,788,789 (305) 6,788,484 Operating costs 32.6/7 (4,983,302) (47,109) (5,030,411) At the time of IFRS adoption as endorsed in KSA, the Group has recognized the below adjustments as at January 1, 2016, the date of IFRS transition, and as at December 31, 2016: Gross profit before bunker subsidy 1,805,487 (47,414) 1,758,073 Bunker subsidy 134,258 - 134,258 A. Revenue of a single voyage which involves multiple discharge points, percentage of completion applied Gross profit 1,939,745 (47,414) 1,892,331 separately for each cargo delivered. Therefore, revenue has been recalculated and adjusted for the voyages General and administrative expenses 32.7 (112,649) 1,587 (111,062) in progress at the transition date and for the year ending December 31, 2016 based on the percentage of completion. Other expenses, net (1,508) - (1,508)

Total operating profit 1,825,588 (45,827) 1,779,761 B. The Group recorded its end of service liability based on the labor laws regulatory requirements. In order Finance income 18,955 - 18,955 to determine the liability under IFRS standards, the Group performed detail actuarial valuation of its end of services benefits. Consequently, increase in the liability for the prior year has been recorded in the opening Finance costs 32.7 (237,075) (2,486) (239,561) retained earnings, the consolidated statement of income and the consolidated statement of comprehensive Share in results of an associate 147,044 - 147,044 income for the year ending December 31, 2016. Income before zakat and taxes 1,754,512 (48,313) 1,706,199 C. The Group has recognized a reduction in the value of the receivable from finance lease balance based on Zakat and taxes, net 43,527 - 43,527 the nature and term of the arrangement. Therefore, receivable from finance lease balance decreased as at the Net income for the year 1,798,039 (48,313) 1,749,726 transition date and for the year ending December 31, 2016. OCI not to be reclassified to income or loss Re-measurement gain on defined benefit 32.8 Reclassifications of Sukuk issuance and loans arrangement fees 32.7 - 4,367 4,367 plans The Group has incurred certain Sukuk issuance and loans arrangement fees, and under SOCPA standards, these Total comprehensive income 1,798,039 (43,946) 1,754,093 costs have been recorded as prepaid financing. IFRS standards require these costs to be offset against the liability of which these costs were incurred. The respective cost has been netted off against Sukuk and long-term loans. 204 Annual Report 2017 205

Consolidated Financial 11 Statements

Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal)

32. FIRST-TIME ADOPTION OF IFRS (continued)

32.9 Consolidated statement of cash flows

The transition from SOCPA GAAP to IFRS as endorsed in KSA has not had a material impact on the consolidated statement of cash flows.

33. SUBSEQUENT EVENTS

In the opinion of the management, there have been no significant subsequent events since the year ending December 13, 2017 that would have a material impact on the consolidated statement of financial position of the Group as part of these consolidated financial statements.

34. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors has approved the consolidated financial statements for the year ending December 31, 2017 on their meeting held on 12 Jumad Thani 1439H (corresponding to 28 February 2018)

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